Brussels, Belgium
Reuters
European Union leaders agreed on a massive stimulus plan for their coronavirus-blighted economies at a pre-dawn meeting on Tuesday after a fractious summit that lasted almost five days.
Summit chairman Charles Michel tweeted “Deal” shortly after the 27 leaders reached agreement at a 5.15am (0315 GMT) plenary session.
“This agreement sends a concrete signal that Europe is a force for action,” Michel said at a dawn news conference.
“It is about a lot more than money. It is about workers and families, their jobs, their health and their well-being. I believe this agreement will be seen as a pivotal moment in Europe’s journey, but it will also launch us into the future.”
President of the European Commission Ursula von der Leyen (centre) and Danish Prime Minister Mette Frederiksen react while wearing face masks during the last roundtable discussion following a four-day European summit at the European Council in Brussels, Belgium, on 21st July. PICTURE: Stephanie Lecocq/Pool via Reuters
French President Emmanuel Macron said the deal was truly historic and that he was convinced the recovery plan and budget could meet the challenge of the coronavirus pandemic.
Officials said the deal, which came after Michel presented compromises on a €750 billion recovery fund, is critical to dispel doubts about the bloc’s very future.
WHAT THE EUROPEAN LEADERS AGREED
1. Key to the deal is a new element in EU policy making: the European Commission will borrow massively on the market and then grant much of the cash, rather than lend it, to countries most in need of economic stimulus. EU leaders agreed the commission would cheaply borrow €750 billion using its triple-A rating. Of that, it would disburse €390 billion in grants and €360 billion in cheap loans.
2. The grants force the bloc to generate cash to repay the borrowing by 2058. Leaders agreed that: Germany, Sweden and the Netherlands would lose their current rebate on the amount of VAT they pass on to the EU; that EU countries will impose a tax on non-recycled plastic and pass on the proceeds to EU coffers; that from 2023 there would be a tax on goods imported into the EU from countries with lower carbon emissions standards than the bloc; and that a tax on financial transactions is another option as is a getting some money from extending the emissions trading system to maritime and aviation sectors. Such new taxes will be expressly allotted to the repayment of €750 billion borrowing, but they will become part of EU reality for the next 38 years.
3. The grants will be disbursed to countries that present plans that strengthen their growth potential, job creation and economic and social resilience of their economies. The plans also have to make economies greener and more digital and be in line with the commission’s annual recommendations. The disbursement will need the approval of a qualified majority of EU governments and be linked to meeting milestones and targets. If any EU government believes such targets had not been met it can ask EU leaders to debate it within three months. The money will also be linked to observing the rule of law – an issue for Poland and Hungary which are under EU probes over their rule of law practice. But there will be a lot of political leeway: if the Commission decides there are “manifest generalised deficiencies in the good governance of member state authorities as regards respect for the rule of law”, it can propose measures that would have to get the backing of a qualified majority of governments.
4. To secure their backing for the recovery plan, net contributors to the EU budget like the Netherlands, Sweden, Austria, Denmark and Germany, will receive much deeper rebates than before on what they have to contribute each year to EU coffers based on the size of their economies.
News of the deal saw the Euro rise to a fresh four-month high of $US1.1470.
The EU was slow to coordinate its initial response to the COVID-19 pandemic and, already weakened by Britain’s departure from the bloc, a united front on economic aid would demonstrate that it can step up to a crisis and stay united.
“It has been a long summit and a challenging summit…” Irish Prime Minister Micheal Martin said as the Brussels summit approached the record length set at a 2000 meeting in the French city of Nice of almost five full days.
European nations have done a better job of containing the coronavirus than the United States after a devastating early few months that hit Italy and Spain particularly hard, collaborating on medical, travel and economic fronts.
The European Central Bank has pumped unparalleled money into economies to keep them going, while capitals hammer out their recovery fund.
Diplomats said the leaders appeared to put aside the rancour that stood in the way of a compromise over hours of haggling through the weekend.
“Stingy and egotistical”
Emotions had ran high at a dinner on Sunday as a group of fiscally frugal northern nations led by the Netherlands stood their ground on the level of free grants within a proposed special recovery fund of €750 billion overall.
French President Emmanuel Macron lost patience in the early hours of Monday, banging his fist on the table in frustration at “sterile blockages” by the “frugals”, two diplomats said.
Polish Prime Minister Mateusz Morawiecki also railed against the “frugals”, branding them “a group of stingy, egotistic states” that looked at things through the prism of their own interests.
Poland would be a top beneficiary of the recovery package, receiving tens of billions of euros in grants and cheap loans, along with high-debt Mediterranean-rim countries that have taken the brunt of the pandemic in Europe.
But the rhetorical skirmishing faded on Monday, and the leaders homed in on an agreement on the stimulus package and, linked to it, the EU’s 2021-2027 common budget of around €1.1 trillion.
Hopes for a deal to help address Europe’s deepest recession since World War II sent Italy’s borrowing costs to their lowest since early March and pushed the euro to a 19 week high.
Michel proposed that within the €750 billion recovery fund, €390 billion should be non-repayable grants, down from €500 billion originally proposed, and the rest in repayable loans.
The Netherlands had pushed for a veto on aid for countries that backslide on economic reform, but diplomats said it was now willing to back a “stop-the-clock” mechanism by which member states could put a brake on disbursements for three months and have them reviewed.
Disbursements will also be linked to governments observing the rule of law. Hungary, backed by eurosceptic ally Poland, had threatened to veto the package if funds were made conditional on upholding democracy, but diplomats said a way forward on that was found.
