Thursday

6th Aug 2020

EU summit enters fourth day with recovery deadlocked

  • Dutch PM Mark Rutte (l), German chancellor Angela Merkel, EU Commission president Ursula von der Leyen, French president Emmanuel Macron and European Council president Charles Michel at the start of the (so far) second-longest EU summit (Photo: Council of the European Union)

EU leaders have struggled through the entire weekend to find a compromise to relaunch the European economy after the pandemic, before entering a fourth consecutive day of talks on Monday (20 July) in Brussels.

The stand-off over the more than €1 trillion seven-year EU budget and the planned €750bn recovery package was between the frugal states led by the Netherlands, and supporters of larger aid, led by France and Germany and mostly hard-hit Mediterranean countries.

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  • European Council president Michel (l) meets with Merkel, Spanish PM Pedro Sanchez, von der Leyen, Italian premier Guiseppe Conte, and Macron in an effort to hammer out an agreement (Photo: Council of the European Union)

The majority of member states, including France and Germany, wanted to maintain the overall figure at €750bn: with €400bn in non-repayable grants to hard-hit countries (down from the earlier, original, €500bn proposal).

The negotiations got stuck on Sunday night over the €50bn gap.

After bilateral negotiations continued all Sunday night, mostly to try to convince the 'frugals' to move their red lines, European Council president Charles Michel is expected to table a new proposal on Monday afternoon with €390bn in grants.

It is unclear what Michel will propose as an overall figure.

But it is expected to include slightly higher rebates - compensation for their contribution to the EU budget - which are, in turn, opposed by several other member states.

On a mechanism linking respect for rule of law with EU funds, Michel is expected to maintain the core of his earlier proposal, with "slight adjustments" to accommodate opponents of the plan.

EU leaders will gather on Monday afternoon to discuss the details of the new proposal - having first met in Brussels on Friday afternoon.

"This is not done deal," said one EU diplomat after the all-night negotiations that have now entered their fourth day.

"At times it didn't look good last night, but I feel that on the whole we are making progress," Dutch premier Mark Rutte told reporters Monday.

Tensions

By Sunday evening, the Netherlands, Austria, Sweden and Denmark, supported by Finland, wanted to push down the recovery package to €700bn - with equally-divided grants and loans available for member states.

The Netherlands, Austria and Sweden then refused to budge, angering French president Emmanuel Macron in particular.

Macron launched into a passionate speech, telling the frugals that France and Germany are the biggest contributors to the recovery package, and will bear the biggest share of borrowing. He added that they are acting not in their interests but of Europe's, according to an EU diplomat familiar with the talks.

The French president said France and Germany had showed flexibility in talks, but the frugals were not moving, and "constantly ask for more." Macron then accused the Netherlands of playing the same role as the UK.

After some tension, Belgian premier Sophie Wilmes helped ease the mood by reminding leaders that everyone is tired, is under tension, and has issues at home.

Michel, earlier on Sunday evening, urged EU leaders to show unity and trust, instead of a weak Europe undermined by mistrust, an EU diplomat familiar with the negotiations said.

"My hope is that we reach an agreement and that the headline tomorrow is that the EU has accomplished mission impossible," he said. "That is my heartfelt wish after three days of non-stop work."

He also told EU leaders there has to be a willingness to compromise, otherwise there is no use in bilateral talks - which took up most of Saturday and Sunday.

Meanwhile on Sunday, European Central Bank president Christine Lagarde told Reuters it would be better for the EU leaders to agree an "ambitious" aid package than to have a quick deal at any cost.

To quell another frugal concern, on halting EU aid to countries that do not progress with economic reforms, Michel proposed that any country within a three-day window could trigger a review by all member states of the spending plans.

Meanwhile, the 2021-2027 EU budget itself was not discussed in detail by leaders.

Rule of law dispute

There were also major differences over a proposed new rule-of-law mechanism that could freeze budget funding to countries backtracking on democratic principles.

While the frugals, along with others, insist on an effective mechanism, Poland and Hungary - which are already under an EU probe for flouting EU rules and values - reject the proposal.

Late on Sunday evening, the frugals pushed for a discussion on rule of law, an EU diplomat said, in what seemed as an effort to push the blame for a possibly-failed summit on Hungary and others opposing the rule-of-law budget link.

Hungarian prime minister Viktor Orban on Sunday told reporters that he rejected the new mechanism, adding that if there is a new mechanism it could take weeks to negotiate a legally-sound tool.

In what seemed to be a snub to other EU leaders by Orban, whose has been curbing democratic institutions at home, the premier said "those who disrespect the rule of law, should leave the EU immediately".

However, linking respect for the rule of law to the EU budget is expected to be watered down to clinch a deal.

If leaders find a way to bridge the gap and on the overall size, they will find a way to "circumvent the rule of law issue," one EU diplomat said.

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EU leaders will face difficult and fundamental issues on Friday-Saturday (17-18 July), when they attempt to agree on the planned seven-year €1.07 trillion budget and €750bn recovery package.

Agenda

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After gruelling five-day talks, EU leaders agreed on €390bn in grants and €360bn in low-interest loans to hardest-hit member states - after much opposition from the Dutch-led 'frugal' bloc of countries.

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