Michel lays out compromise budget plan for summit

The Belgian politician offered a smaller, €1.074 trillion EU budget than that proposed by the EU commission in May, but suggested keeping the recovery package at €750bn, to mitigate the economic fallout from the corona crisis.

He said leaders' first discussion on the commission's proposal "revealed strong opposition to some elements of the package".

Leaders agreed to allow the commission to borrow money from the capital markets to remedy the biggest recession the EU has ever faced.

But the details of the EU executive's plans faced strong opposition mainly from fiscally-conservative countries.

The so-called 'Frugal Four', led by the Netherlands, sought a smaller budget and recovery fund, available only in loans, with strict oversight on spending by fellow member states .

In a concession to the fiscally-conservative capitals, Michel proposed that Austria, Denmark, the Netherlands, Germany and Sweden could keep their rebates, a form of compensation for their net-budget contribution.

In his proposal, Michel kept the ratio of distributing two-thirds of the €750bn fund in grants and one third in loans to member states, to "avoid overburdening" some countries with more debt.

Michel devised a plan to commit the majority of the grants in 2021 and 2022, and 30 percent in 2023, based on slightly different data which would show a clearer picture on which countries are worst-affected by the corona-induced economic crisis.

With this move, Michel tried to address calls for funds to be distributed fast, and the concerns of the 'Frugal Four' to focus more on the direct impact of the pandemic.

On the key issue of how to monitor the spending of the fund, Michel proposed to have the commission and the majority of EU countries approve national reform plans and their implementation, to unlock the EU aid.

'Don't burn money'

"Our goal is not to burn money, but to invest and to reform," Michel said.

The Netherlands has pushed for a unanimous approval by member states on their fellow EU member's reform program.

However, countries such as Greece, which had been heavily-surveilled during the debt crisis by EU institutions, have pushed back against other member states having a veto over national policies.

Michel also maintained his proposal from February to establish a mechanism linking EU countries' respect for the rule of law to the disbursement of EU funds.

According to his proposal, in a nod to countries such as Poland and Hungary (who heavily pushed back against the idea), a majority of member states need to approve sanctions in case of a rule of law deficiency.

The compromise is a weaker mechanism than the more automatic sanctioning originally planned by the commission.

However, Michel's proposal foresees more funding for the European Public Prosecutor's Office, fighting disinformation and supporting media pluralism, among other areas.

Michel also proposed to have new EU-level levies to help repay the debt taken on by the commission: on un-recycled single-use plastics from 2021, on digital transactions and carbon footprint of imports by 2023, and with more taxes possible later on.

Michel also wants to earmark 30 percent of funds, an increase from the originally planned 25 percent, for projects that fight climate change.

A new €5bn Brexit adjustment fund to support Ireland, Belgium and other countries, regions and industries most affected by Britain's departure from 2021 is also planned, but its creation will depend on whether there is an agreement between the UK and the EU on the future relations.

Time pressure

Michel's proposal will be the basis for discussion for EU leaders next weekend, and it remains to be seen if then a compromise can be struck at one meeting - or more summits are needed.

Until then, there will be a flurry of bilateral meetings across the continent between EU leaders to hammer out differences.

German chancellor Angela Merkel is to meet Italian premier Giuseppe Conte next Monday and the Spanish PM Pedro Sanchez on Tuesday.

Meanwhile, Dutch prime minister Mark Rutte will host Portugal's Antonio Costa and Sanchez on Monday.

Merkel is pushing for a deal at next week's summit, as a swift decision would not only save the EU from prolonged economic depression and push back populists, it could also save the German EU presidency from getting stuck in protracted haggling.

"We need political courage, now is the time to decide," Michel told reporters on Friday.