Thursday

13th May 2021

EU still divided on recovery but Denmark relaxes position

  • EU Council president Charles Michel (c) had tried to soften the 'frugal' prime ministers in February, unsuccessfully (Photo: Council of the European Union)

Denmark has eased its position on the EU's economic recovery plan after the pandemic ahead of a key meeting, still to held online, of EU leaders next week.

While Denmark remains reluctant on handing out more grants to member states under the corona recovery plan, Copenhagen does not want to get rid of them altogether, only reduce their size -according to a government negotiating mandate sent to the Danish parliament on Tuesday.

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The EU Commission's proposal of a €750bn recovery fund plans to distribute €500bn in the form of grants to member states and €250bn in loans.

Denmark is one of the four countries nicknamed the 'Frugal Four' - along with Austria, Sweden and the Netherlands - which had opposed grants as opposed to loans under the recovery fund, and also insisted on a seven-year EU budget not exceeding 1.0 percent of the blocs gross national income.

Danish media also reported that the Copenhagen government could be open to agreeing to a larger budget.

Denmark, however, will insist on continuing to receive a rebate, a compensation for contributions to the EU budget originally introduced for the UK.

France and other EU countries had argued for getting rid of the rebates, while the commission proposed a slow and gradual phasing out.

The Frugal Four had been sticking together during the first round of negotiations by EU leaders of the next 2021-27 EU budget, arguing for a smaller sum after Britain's departure from the EU.

The commission revised its budget proposal to to €1.1 trillion, while in February, EU Council president Charles Michel's compromise proposal stood at €1.095 trillion.

Leaders of the four countries had a online meeting on Wednesday, according to a tweet by Austrian PM Sebastian Kurz, and had a joint video-conference with Michel on the budget and the recovery.

'Undesirable' grants

But Denmark's apparent softening does not yet foreshadow any breakthroughs, even though Germany's finance minister Olaf Scholz said on Tuesday he expects an agreement "within a short time".

EU diplomats have been busy unraveling the €1.85 trillion commission budget and recovery proposal to form a position ahead of the EU leaders' videoconference on the issue next week.

The commission proposed to borrow money on the markets to finance the recovery, channel it through the EU budget through loans and grants to member states, and start repaying after 2027, for 30 years.

Countries wanting to access the recovery fund would have to draw up national plans adhering EU green and digital goals and economic advice before the commission, in consultation with member states, approves the plans.

"The real discussion will be kicked off next week, until then is just taking the temperature," one EU official said.

After the online debate, Michel is expected to work on a compromise.

EU leaders are expected to meet again in person in July in Brussels for a personal meeting to try to find a compromise.

The 'frugals' have been voicing doubt over the size of the recovery, the precise conditions countries need fulfil to access the recovery money, the balance of grants and loans, and the start of the repayment of loans the commission is planning to take on to finance the recovery fund.

Another issue where the 'frugals' are expected to object is new own resources, new forms of revenues for the EU.

"Loans are a perfect instrument, and we don't see a problem in the capital markets for the moment, so grants are undesirable," said one reluctant EU diplomat.

"We do not see the rational that convergence can only be happening through grants," the diplomat added.

'Absurd'

But it's not only the 'Frugal Four' that have criticised the commission's plans.

Hungarian PM Viktor Orban called the plan "absurd" and said the EU package triggered "red lights" because it was not only made up of countries' contribute but loans as well.

Orban's allies in the Visegrad Fourur, another loose club of like-minded countries including the Czech Republic, Poland and Slovakia, had been divided on the commission proposal.

Poland benefits greatly from the recovery proposal, and supports it, while Orban and his Czech counterpart, Andrej Babis railed against the plans.

The V4 leaders will discuss the commission's proposal on 11 June.

Analysis

EU Commission's €1.85trn recovery package - key points

With an eye-watering over a trillion euro revised budget and a €750bn recovery package, the EU Commission hopes to restart Europe's economy. Here are some of the key aspects of the proposals.

Mix of loans and grants in Commission €750bn package

Italy and Spain, the worst-hit EU countries by the coronavirus pandemic, will get much of the new money under the European Commission's recovery plans - that mark a turning point for the bloc in moving towards joint debt.

EU links access to recovery fund to economic advice

Most EU countries are now breach the common fiscal rules, as governments tackle the economic fallout of the coronavirus pandemic. The commission plans to link recovery funds to countries following its budgetary advice - but sanctions seem to be few.

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EU budget: Don't repeat the austerity of 2008

European leaders have a historic choice on Friday when they dial-in to discuss how to stop a health crisis turning into a social one: will they learn the lessons of 2008, or opt again for austerity and short-term self-preservation?

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