EU leaders have reached a historic agreement on a €750bn coronavirus pandemic recovery fund and their long-term spending plans following days of acrimonious debate at the bloc’s longest summit in nearly two decades.
As the meeting reached its fifth day, the 27 exhausted heads of state and government finally gave their seal of approval to a plan for the EU to jointly borrow debt to be disbursed through grants on an unprecedented scale, in the face of an economic downturn not seen since the Great Depression.
The end of the tortuous process was announced by the European council president, Charles Michel, who had been chairing the leaders’ long debates, with a single word on Twitter: “Deal!”
Charles Michel
(@eucopresident)Deal!
The euro rose against the dollar on the news to stand at $1.145. France’s president, Emmanuel Macron, described it as a “historic day for Europe”.
Ursula von der Leyen, the European commission president, said the negotiations, lasting more than 90 hours, had been “worth it” and that the EU could not be accused this time of doing “too little, too late”.
Talks for the hard-won deal pitted north against south and east against west as governments haggled over the terms of both the bloc’s seven-year budget and a one-off economic stimulus.
The summit, stretching from Friday morning into the early hours of Tuesday, was so prolonged that two leaders, Xavier Bettel of Luxembourg and Ireland’s Micheál Martin, briefly returned home before coming back to Brussels.
Despite initial opposition from the so-called frugal states of the Netherlands, Austria, Sweden and Denmark, agreement was finally found, following a final 5.15am session of the 27 on Tuesday morning, to disburse vast sums in the form of non-repayable grants to countries most stricken by the coronavirus pandemic.
What are EU leaders arguing about?
At stake is a €750bn coronavirus recovery plan intended to pull the EU out of a historic recession, as well as a €1.074tn seven-year budget. One big row is how far countries should be able to access grants. France and Germany, backed by the European commission, proposed €500bn in grants (the rest in loans) targeted at countries hardest hit by coronavirus. That has been whittled down to €390bn in a compromise plan, but whether it will be accepted remains unclear.
Who wants what?
Angela Merkel and Emmanuel Macron think the unprecedented crisis requires serious financial firepower, backed by Italy and Spain, who see Covid-19 as a test case for European solidarity. A group of northern states – Austria, Denmark, the Netherlands and Sweden, styled the “frugal four” – are wary of fiscal transfers. Dutch prime minister Mark Rutte takes the most hardline position, as he also wants his government to be able to veto recovery funds if a recipient is deemed failing on economic reforms.
What about central Europe?
Adding to the complexity is an argument over tying EU funds to respect for democratic values. Hungary and Poland, currently subject to EU inquiries on the rule of law, want a veto on any attempt to remove funds from a rogue government. France, Germany and the Scandinavian countries, who fear the weakening of democratic checks and balances, say there must be a link. Now some diplomats fear the issue could become hostage to a recovery plan deal.
Jennifer Rankin in Brussels
The breakthrough followed a new proposal from Michel for the EU to pay out €390bn in grants and €360bn in loans from the new economic reconstruction fund.
The “frugal” states had been pushing for the original proposal by the European commission for €500bn in grants to be reduced to €350bn, to the evident frustration of Macron and the German chancellor, Angela Merkel.
Italy’s prime minister, Giuseppe Conte, had at one stage warned his Dutch counterpart, Mark Rutte, who led the way on reducing the level of grants, that he might become a hero at home but that he faced being blamed by the rest of Europe for his lack of solidarity.
But Michel’s new formulation, emerging out of hours of bilateral talks with the leaders on both sides of the debate outside of the full plenary sessions, finally received the unanimous support it required.
“This recovery fund is indeed a historic change and a historic step for Europe,” said Macron, in a joint press conference with Merkel.
At one point during the bad-tempered negotiations Macron had thumped the table in frustration and likened those thwarting his spending plans to the ill-fated British in previous budget negotiations.
The final outcome is a messy bundle of compromises. As part of the deal, the “frugals” will receive significant increases in the rebates they receive on their budget contributions, a throwback from 1984 when Margaret Thatcher secured discounts on the UK’s outsized budget contributions.
Merkel said the British departure had changed the balance among the remaining 27 members and created a new dynamic.
Michel also watered down his initial proposal for holding up the disbursement of funds both where there are concerns over either a lack of promised economic reform or the state of the rule of law in a country.
Where there are fears that reforms are not being implemented by member states in receipt of money, any one EU leader can halt the disbursement to allow the European council of the 27 heads of state and government to “exhaustively” debate the situation.
On the rule of law, France, Germany and other countries had wanted a link to EU funds but Hungary and Poland’s governments, who have been previously accused of undermining judicial independence and minority rights, rejected this plan.
The compromise agreed by the leaders instead puts off designing a rule of law mechanism for another day with agreement to be made by a qualified majority of member states.
The final deal also swung in Poland’s favour by watering down a demand to link green transition funds to signing up to the 2050 climate target to the consternation of activist groups and senior MEPs.
Poland, which stands to gain €37bn in grants from the fund, plus potentially billions more from a “just transition fund” to move away from coal, is the only EU member state not to have made the 2050 pledge.
Beyond a debate about the size of the recovery fund for countries hit hardest by the coronavirus pandemic, leaders had to haggle over the EU’s seven-year budget, which is due to start next year.
Michel secured agreement on €1.074tn on EU programmes although the leaders will face severe opposition in the European parliament when it is brought to the chamber for MEPs’ agreement.
The Brussels summit, the first in-person meeting of the leaders for five months, was just a few minutes shorter than the record-holding meeting in Nice 20 years ago when leaders debated EU enlargement.
