EU leaders remain deadlocked on recovery fund in protracted summit
Third day of talks make slow progress as bloc continues to haggle over size and conditions of €750bn recovery plan
EU leaders spent a third day locked in marathon summit talks over Europe’s proposed €750bn response to the coronavirus pandemic on Sunday, as they battled to overcome gulfs that have split north and south, and east and west.
The protracted summit in Brussels, which began on Friday morning, has laid bare deep differences over the size, design and conditions attached to a planned multibillion-euro package of loans and grants designed to revive Europe’s economy after months of hibernation.
The divisions pit a group of richer “frugal” member states — Austria, Sweden, Denmark and the Netherlands — against the likely biggest recipients of EU pandemic emergency funds. But leaders also clashed over how to police countries’ respect for the rule of law, with Hungary’s Viktor Orban facing off against western leaders over proposals to hardwire respect for fundamental rights into the recovery plan.
The proposals on the summit table are the fruit of months of work by Brussels to craft an effective response, but they take the EU into the uncharted territory of allowing the union to borrow massively on the financial markets. The marathon summit talks also encompass the bloc’s next long-term budget, forcing leaders to confront longstanding divisions over EU economic policy.
Leaders shuffled between a succession of small-group meetings in Brussels’ Europa building all through Sunday, repeatedly delaying the moment when they would all return together to the summit table as they sought to overcome sticking points.
Frugal capitals demanded drastic cuts to a €750bn package as their price for signing up to a final compromise, while Spain, Italy and others pushed back against a watering down of Europe’s response to the biggest economic crisis in its history.
“Leaders are working very hard to bridge the differences, which are still there,” said one diplomat. “It might take a while.”
At the centre of the debate is the level of non-repayable grants that the new recovery fund can dish out. Frugal leaders proposed on Sunday that the amount should be cut to around €350bn. This would be a far cry from the €500bn originally proposed by the commission, as well as in a Franco-German proposal tabled in May. Some diplomats predicted that a final compromise would have to be higher than this, as countries hit hardest by the crisis continued to push for a number above €400bn.
At the start of Sunday’s talks, Germany’s Angela Merkel told reporters she was uncertain “whether a solution will be found”, adding: “There is a lot of goodwill but there are also a lot of different positions,” she said. “I will do my part in this. But it is also possible that there will be no result today.”
The previous night, Ms Merkel and Mr Macron had been left visibly frustrated by the demands for lower grants and curtailed a meeting with frugal leaders. “They were not happy with the frugals’ demands on the size of cuts,” said one diplomat.
In parallel, Dutch prime minister Mark Rutte’s insistence on having the right unilaterally to veto grant payments to stricken countries if they do not meet reform demands also continued to spark resistance from Italy. Both sides were on Sunday locked in compromise talks.
Both Madrid and Rome have said they cannot accept plans on the table — crafted by Brussels to assuage Mr Rutte — that would give finance ministers the final say on whether a nation deserved to keep receiving its tranches of recovery aid.
Italy’s prime minister Giuseppe Conte said his country was “sharply confronting” frugal capitals in order to rescue a sizeable recovery package. “[Our] tools must be proportionate to the crisis and effective. Our answer must be prompt, solid, robust,” Mr Conte said during a break.
Mr Orban also emerged as a roadblock to a deal when he threatened to veto a compromise that tied distribution of aid to respect for the rule of law. Budapest demanded that any potential sanctions to suspend cash payments could only be done with the unanimous support of all governments — in effect handing one country a veto.
Speaking to journalists on Sunday, Mr Orban accused Mr Rutte of hating him and Hungary, and seeking to financially punish the country for failing to respect the rule of law, adding this was “not acceptable”.
A deal “will not be built on sacrificing Europe’s ambition,” France’s Emmanuel Macron said on Sunday. “Not out of principle, but because we are facing an unprecedented health, economic and social crisis, because our countries need it, and because the unity of Europe needs it.”
Mr Orban’s stance on the rule of law mechanism was backed by Poland, which joined Hungary in rejecting a draft plan that would require a qualified majority of member states to back potential cash sanctions.
Western governments, including the frugals and France, have called for a stringent system under which money would be withheld for governments who breach the EU’s fundamental rights. One diplomat said Hungary and Poland’s stance was designed to extract more money as part of a final compromise.
Non-frugal leaders emphasised their desire to reach a deal, but warned that it could not come at the expense of whittling down Europe’s economic response to Covid-19.
Mr Macron’s stance was echoed by other leaders including Greek prime minister Kyriakos Mitsotakis, who said: “We simply cannot afford to either appear divided or weak.”
Diplomats said Charles Michel, European Council president, would need to table a fresh compromise addressing the outstanding issues on Sunday, or risk failure in the first face-to-face summit of EU leaders in five months.
Mr Michel on Saturday sought to re-energise the talks by tabling a compromise that trimmed €50bn off the total amount of grants to be doled out.
Mr Michel’s compromise kept the overall size of the EU’s borrowing plan at €750bn, but shifted the balance between loans and grants. Cuts to the overall volume were done by scrapping a proposed recapitalisation tool for struggling companies worth €26bn and trimming an initiative to stimulate private investment from €30bn to €11bn.