Deadlock- Eu Council Update

Reading Time: 9 minutes

Update 0000h : A stand-off between EU leaders at a summit in Brussels on Saturday threatened to derail plans for a massive stimulus fund to breathe life into their coronavirus-hammered economies.

“We are in an impasse now. It is more complex than what was expected,” Italian Prime Minister Giuseppe Conte said in a video on Facebook as the 27 European Union leaders neared the end of a second day of talks. “There are many issues that remain unresolved.”

The budget commissioner of the bloc’s executive reminded the leaders – who wore masks and kept their distance from each other – that COVID-19 was still among them and they needed to act.

“Just a solemn reminder: the Corona crisis is not over: infections on the rise in many countries,” Johannes Hahn tweeted. “High time to reach an agreement which allows us to provide the urgently needed support for our citizens+economies!”

Hopes for an agreement grew earlier on Saturday when the summit’s chairman, European Council President Charles Michel, proposed revisions to the overall package that were designed to assuage the Dutch concerns.

Under the new proposals, the portion of grants in the recovery fund would be reduced to 450 billion euros from 500 billion and an ‘emergency brake’ on disbursement would be added. But hopes that this would be enough to get a deal faded quickly.

“The chance is very slim that an agreement will be reached tonight. Very slim,” a diplomat from an EU member state said.

The diplomat said “frugals” were pressing for deeper cuts to the fund and bigger rebates for net payers into the core EU budget, among other demands.

Other countries had their own demands in negotiations criss-crossing different regional and economic priorities, putting in doubt an unprecedented act of solidarity for the EU under which the European Commission would borrow billions of euros on capital markets on behalf of them all.

The EU is already grappling with the protracted saga of Britain’s exit from the bloc and has been bruised by past crises, from the financial meltdown of 2008 to feuds over migration.

Another economic shock could expose it to more eurosceptic, nationalist and protectionist forces, and weaken its standing against China, the United States or Russia.

The exact size of the EU’s long-term budget and how far to use payouts as leverage for reforms, or whether to withhold money from countries that fail to live up to democratic standards, were still unresolved on Saturday evening.

Hungary, backed by its eurosceptic, nationalist ally Poland, has threatened to veto the whole package over a new envisaged mechanism to freeze out countries flouting democratic principles.

As leaders huddled in groups to find a way forward, an EU diplomat said that Michel would come up with another revision to the package before they gathered for dinner.

EARLIER:

With the pandemic dealing Europe its worst economic shock since World War Two, leaders gathered on Friday to haggle over a proposed 750 billion euro ($856 billion) recovery fund and a 2021-27 EU budget of more than 1 trillion euros.

But a group of wealthy and fiscally “frugal” northern states led by the Netherlands have blocked progress in the first face-to-face EU summit since spring lockdowns across the continent.

They favour repayable loans rather than free grants for the hard-hit indebted economies mostly on the Mediterranean rim, and they want control over how the funds are spent.

 

 

After the night-long negotiations of Friday, the discussions followed on Saturday within the context of what the EU Budget Commissioner Johannes Hahn said, namely reminding the European Council of the urgency to reach a budget agreement, noting in a tweet that the crisis “is not over.”

Update: The first session of negotiations on Saturday was based on a round of consultations at where the European Council President, Charles Michel, held meetings with leaders of Denmark, Austria, the Netherlands, Finland, Sweden with France, Germany, Italy, Spain and Portugal with European Commission President Von Der Leyen. 

On the table was a new proposal, presented by Charles Michel. which the Dutch welcomed. However first reports indicate that a final deal on how to revive growth stifled by the coronavirus pandemic remained far off.

Charles Michel has laid out a full 65-page draft compromise proposal. That sticks with the plan for a 2021-2027 EU budget of €1.074 trillion, where he is now proposing that the €750 billion recovery fund be made up of €450 billion in grants (compared to an earlier proposal for €500 billion) and €300 billion in loans (up from €250 billion).

“Cohesion, resilience and values” will receive €384.3 billion under the new plan, according to the document seen by POLITICO. That’s an increase from the €380.5 billion Michel proposed earlier this month. Meanwhile, planned funding set aside for unforeseen events and new priorities would be reduced from €25.1 billion to €20.1 billion. However, a proposed €5 billion fund within this category to address the impact of Brexit is preserved in the new proposal.

Charles Michel is suggesting that a new formula be used for the €325 billion of grants to be given to countries under the Recovery and Resilience Facility.

The change is designed to respond to concerns from some countries that the plan favored some members much more than others.

Allocations in 2021-2022 would be made using the original formula, which includes unemployment data for 2015-2019. But in 2023 the historical unemployment figures would no longer matter, since money would be distributed based on the loss of GDP in 2020 and 2021, according to the draft text floated Saturday morning.

The Financial Times reported that by late afternoon, an alliance of the so-called frugal nations — the Netherlands, Austria, Sweden, and Denmark — were pushing for substantial cuts to grants worth €325bn under a proposed €625bn recovery fund. Diplomats said discussions could drag into Sunday.

The income stream of the new deal will be based on

  • A levy based on non-recycled plastic waste to be introduced on January 1, 2021;
  • Proposals on a carbon border tax and a digital tax at the start of 2021, to be implemented by January 1, 2023;
  • A proposal to revise the EU Emissions Trading System, which could extend it to cover aviation and the maritime sector;
  • A plan to “work towards” other revenues eg. a Financial Transaction Tax in the future.
  • All but the plastics levy would be used to repay the money borrowed for the recovery fund, under the proposal.

The new proposal by Charles Michel, deemed as a compromise proposal has caused a bit of confusion, according to POLITICO as the numbers appears not to add up.

The Council chief’s proposal states that the 2021-2027 budget would amount to €1.074 trillion.

But the 65-page proposal breaks down as follows:

Single market, innovation and digital: €131.3 billion

Cohesion, resilience and values: €384.3 billion

National resources and the environment: €355.6 billion

Migration and border management: €22.29 billion

Security and defense: €13.17 billion

Neighborhood and the world: €98.4 billion

European public administration: €73.1 billion

TOTAL: €1.078 trillion

 

As it happened

The talks on Friday were deadlocked over who should control how the money is spent, as Prime Minister Mark Rutte held out against his EU counterparts after 13 hours of negotiations at a summit in Brussels.

With the pandemic dealing many European economies their worst economic shock since World War Two, leaders seek to agree on a 750 billion euro ($856 billion) recovery fund and a 2021-27 EU budget of more than 1 trillion euros.

CDE Photo

“I’m doing this for the whole of Europe, because it is also in the interest of Spain and Italy that they emerge from this crisis with strength,” Rutte told reporters early on Saturday, referring to the two EU countries most affected by the pandemic.

Many of the 27 leaders – wearing masks in their first face-to-face meeting since February – had their own demands in negotiations crisscrossing different regional and economic priorities.

Untitled design-19

But the Dutch position highlighted the deep splits in the bloc, as the executive European Commission seeks a mandate to borrow billions of euros on capital markets for the first time.

Fiscally conservative countries such as Austria, Denmark and Sweden are adamant that any new debt should be strictly policed.

The European Parliament must also approve any deal done by leaders.

Bulgarian Prime Minister Boyko Borissov said he saw a route to a compromise by involving EU finance ministers in monitoring new debt, rather than just the European Commission.

Senior EU lawmaker Guy Verhofstadt via Twitter rejected involving finance ministers, however, concerned that the parliament might be sidelined.

The leaders of France, Germany, the Netherlands, Spain, Italy and the Commission also held talks, meeting in a format once used to discuss Greek debt relief, an issue that dogged the bloc for years.

European Council President Charles Michel, who chaired the summit, then circulated new proposals seen by Reuters which tried to resolve the Dutch demands.

Special European Council in Brussels
EPA-EFE/STEPHANIE LECOCQ / POOL

“In the end this is a package and there are many more issues to solve. But the proposal on governance as put forward by Michel is a serious step in the right direction,” a Dutch diplomat said in reaction.

“Many issues remain and whether we get there will depend on the next 24 hours.”

The exact size of the new EU budget and how far to use payouts as leverage for reforms, or whether to withhold money from countries that fail to live up to democratic standards, were still to be resolved.

A senior diplomat said: “The key question now is whether… we can move on to other issues. There will still need to be a discussion on volume, and that’s before we get into the rule of law.”

Under the new proposals, the portion of grants in the 750 billion euro recovery fund would be reduced to 450 billion euros from 500 billion.

They also call for an ‘emergency brake’ on disbursement of funds, to appease states who want conditions attached to grants and would prefer to see those countries worst affected by the coronavirus crisis take loans.

The proposals would also increase rebates on the multi-year EU budget for Austria, Denmark and Sweden.

“We are not at the end of the negotiation, but this at least provides a basis for negotiation,” a second EU diplomat said.

 

Issues

Environment and Recovery: 

Reports indicate that for Charles Michel the European Green Deal objectives remain paramount, in the sense that only EU countries that have committed to a national objective of climate neutrality by 2050 will get access to the Just Transition Fund.

This aspect was criticised by Poland and the Czech PM, since Poland refuses to adopt the 2050 climate neutrality objective at home. In contrast, some of the frugal governments have raised objections to Poland being a major recipient of new recovery funding.

Rule of Law 

Despite Hungarian Prime Minister Viktor Orbán’s threat ahead of the summit to veto any deal that includes a link between EU funding and rule of law, this morning’s compromise proposal repeats an earlier Charles Michel suggestion.

Special European Council in Brussels

It’s for a mechanism linking funding and the rule of law that could be approved by qualified majority in the Council — an approach countries like the Netherlands have indicated is too weak but some others have signalled could be a suitable compromise.

Hungary, backed by its eurosceptic, nationalist ally Poland, threatened to veto the whole package over a new envisaged mechanism to freeze out countries flouting democratic principles.

Italy

Giuseppe Conte strongly criticised countries proposing to give capitals a veto power on how recovery money is spent, an Italian official said. Conte was reported saying that the veto would be unacceptable from the legal and political point of view as it would change the institutional structure of the Union.

Cyprus – Turkey

Meanwhile, in a reminder it’s not just the budget, the Cypriot President Nicos Anastasiades has took the opportunity of the EU summit to once again draw attention to its complaints about Turkey’s oil and gas exploration in the Mediterranean that Nicosia says violates its territorial sovereignty. Anastasiades raised the issue, which has prompted numerous warnings from Brussels to Ankara, during a bilateral meeting with German Chancellor Angela Merkel.

POLITICO/FinancialTimes/Twitter/Reuters/

This site uses Akismet to reduce spam. Learn how your comment data is processed.

%d bloggers like this: