9th Feb 2023

EU leaders seek to first narrow differences at summit

It will be the first act in the summer drama by which European leaders trying to agree on historic changes and bridge decades-old disagreements - all in a matter of weeks.

On Friday (19 June), EU leaders are holding their first discussion on the EU Commission's fresh recovery proposal and the revised long-term budget for 2021-27.

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Still over videoconference, leaders will present their take on the commission's plan to temporarily borrow €750bn on the markets against the EU budget, plus the revised €1.1 trillion budget proposal.

There are major disagreements over the size of the recovery, and whether two-thirds of it should be paid to member states in grants as the commission proposes, plus how the money should be distributed to countries.

There are several camps: most notable are the 'Frugal Four', Austria, Denmark and Sweden, led by the Netherlands, whose weight and visibility in the EU has grown since Brexit.

They see themselves as more disciplined financially than their southern peers, and want to avoid picking up the bill for the borrowed recovery money and wish to see a smaller budget, and smaller fund.

They argue for targeted and Covid-related support, loans instead of grants, and strict conditions to access money.

Southern member states, especially Italy and Spain which were very badly hit by the coronavirus outbreak, want to make sure their public-debt burden does not grow and are seeking grants.

Eastern members fear their traditional EU support will be diverted to southern countries based on the commission's criteria for distribution, even though these states are richer than most eastern regions.

The stakes are high and the time is short as the pandemic leaves behind the biggest recession the EU has seen, and the new seven-year budget should be in place for January.

'Politically dangerous'

No agreement is expected from Friday's discussions, only an attempt to narrow differences.

EU Council president Charles Michel hopes leaders will agree on some basics: that the unprecedented crisis needs exceptional response, the commission can borrow on the markets, help should be targeted, the budget and the recovery plans should help transform Europe's economies to be greener and more digital.

Michel also hopes there will be a better understanding among leaders for each other's position.

Joint borrowing on such a large scale is an exceptional response, but fierce negotiations are expected in July on the many details.

After the videoconference, Michel will have to come up with an compromise proposal by the end of the month to be able to call an in-person summit in the beginning of July.

"The overall atmosphere will indicate how far and how fast we can go," said on senior EU diplomat.

The delicate haggling over money will have to be done in person by leaders, and might require two meetings in July, several officials noted.

"At a certain point, the leaders will have to take their responsibility, and try to find agreement among the 27," said the diplomat.

"It would be detrimental to the EU economically if it dragged beyond August, and politically might be even more dangerous," the diplomat added.

Diplomats and MEPs point out that the long-term EU budget requires the approval of the EU Parliament, and for it to function properly, legislation need to be adopted, which usually takes around six months.

EU leaders last discussed the budget in February, when talks broke down over what diplomats called an around €10bn gap among positions. The package, and the differences, are now larger.

One key critical issue in February was rebates, originally designed for the UK, and which is a compensation some of the net payers wanted to hold onto. While others wanted to be phased out, a disagreement that persists.

On Thursday, German chancellor Angela Merkel urged for an agreement "as quickly as possible".

"The pandemic has revealed how fragile the European project still is," Merkel told MPs in Berlin, according to Reuters.

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EU finance ministers will continue discussions on plans to offset the economic shock caused by the coronavirus pandemic - after failing to bridge deep divides over how to manage debt.

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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.

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EU Commission vice-president Maros Sefcovic pleaded with EU affairs ministers for "rapid agreement" on the EU budget and recovery plans to be unveiled on Wednesday - but an agreement and ratification process has its risks.

EU leaders to reconvene in July on budget and recovery

Most EU leaders want an agreement before the summer break, but the Dutch PM, leading the 'Frugal Four', warned there might not even be a deal then. But the ECB's Christian Lagarde has warned of a "dramatic" economic fall.

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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.


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