EU heads of state and government will debate for the first time on Friday 19 June the proposals on the €750 billion Covid-19 Recovery Plan for Post-Pandemic Europe and a revised Multiannual Financial Framework (MFF) 2021-2027 amounting to €1.1 trillion.
There will be no real negotiation on Friday because the format of the video conference discussions does not lend itself to it. EU leaders will engage in a “political exchange”, according to a European diplomat, the first at this political level since the European Commission presented its proposals at the end of May (see EUROPE 12494/1).
The aim is to draw guidance from these discussions on the process to be followed in the coming weeks. “There are no expectations in terms of results”, a European diplomat confirmed on Friday.
The President of the European Council, Charles Michel, hopes that the Member States will present their political priorities, with a view to determining the way forward in order to reach a compromise. “This is a step that should lead to an agreement in July”, a diplomatic source said.
It will be up to Mr Michel, in cooperation with the future German Presidency of the Council, to determine, in the light of the discussions, the continuation of the work and consultations. The President of the European Council could thus submit to the EU27 a new ‘negotiating box’ to facilitate a compromise and convene a new EU summit, probably in the first half of July. A summit in Brussels would then authorise a classic, “physical” negotiation.
German Chancellor Angela Merkel said Thursday that she wants a comprehensive agreement to be reached before the end of July. The European Parliament and the national parliaments would then have time to ratify it “by the end of the year”, she told the Bundestag.
Many other capitals are also hoping for an agreement “in July”. “The schedule that will be set by Charles Michel cannot be fixed in advance, not even on Friday”, said one source. Nevertheless, “political pressure is very strong. The absence of an agreement would have far-reaching consequences”, admitted one European diplomat.
Another national diplomat even argued that, in the absence of an agreement in July, a subsequent EU summit will be necessary at the end of August.
On Friday, if the EU27 do not fundamentally challenge the architecture envisaged for the European Recovery Plan, namely a joint borrowing by the Commission on behalf of the EU, a step in the right direction will have been taken, the Commission said.
Several potentially explosive topics will also be discussed.
Loans/grants. The so-called ‘frugal’ countries - the Netherlands, Denmark, Sweden and Austria - prefer the European recovery plan to be limited to providing aid in the form of loans. But they are not exactly on the same line, which would leave room for negotiation, especially on how the funds of the recovery plan will be used (investments useful to all).
Other countries - Italy, Spain, France, Germany... - on the other hand support the idea of massive grants (€500 billion) as well as loans (€250 billion), as suggested by the Commission.
Do Member States agree with the principle of subsidies? “There is not yet agreement on this point”, especially on the part of countries, such as the Netherlands, which require ratification by the national parliament.
Allocation criteria. Discussions are also likely to focus on the criteria for allocating funds from several instruments in the European Recovery Plan.
The Recovery and Resilience Facility aims to mobilise €310 billion (and €250 billion in loans) to be allocated to the countries and sectors most affected by the pandemic on the basis of national investment and reform programmes presented by Member States.
The Commission suggested allocation criteria (population, reverse GDP per capita and unemployment between 2015 and 2019).
However, some Central and Eastern European countries (see EUROPE 12505/5), as well as Belgium and Luxembourg, would like to introduce the following data: economic criteria linked to the crisis, recent unemployment, health expenditure, etc.
The Commission does not believe that using data linked to the economic forecasts would fundamentally change the envisaged distribution, as Italy and Spain are expected to be the main beneficiaries of the Recovery Plan.
Discussions on allocation criteria also arise, including on the Just Transition Fund. As for the planned REACT-EU budget increase for cohesion policy, the Commission has not at this stage set out any allocation criteria, preferring to wait until it has a clearer picture of the impact of the crisis.
PSC out of stimulus package. Frugal countries are asking for additional budget savings in the proposal on the table. Supported by Germany, they call for the retention of the rebates and budget corrections.
However, the vast majority of EU countries consider that, with Brexit, these discounts are no longer relevant and should therefore be abolished. Indeed, the Commission has proposed their phasing out by 2025.
Own resources. The latest compromises presented to the EU27 before the pandemic retained two new sources of funding from the EU budget: the tax on plastics and revenues from the ETS system.
“It is around these parameters that the negotiation on recipes will have to be concluded, but the debates will not be simple”, a diplomatic source predicted. “Without own resources, it’s like an engine without petrol”, commented one EU diplomat.
The difficulty of the exercise lies in the fact that, apart from the ETS system, the resources envisaged - digital and plastics taxes, carbon adjustment mechanism at the EU borders - have yet to be created. Hence the idea of giving itself until 2028, the date from which the European loan would start to be repaid, to legislate on the matter.
Rule of law. Moreover, many countries - Germany, France, the Scandinavian countries, Belgium - consider it essential to establish a link between the disbursement of funds and respect for the rule of law.
The European Parliament lays down its conditions. On Thursday, the presidents of the pro-European political forces in the European Parliament again detailed their vision of a MFF 2021-2027 acceptable to them. They draw red lines and warn that the European Parliament, as the European budgetary authority, will only give its consent if the future unanimous agreement of the European Council respects them.
The overall €750 billion Next Generation EU recovery plan is “a good starting point” in the discussions and the €500 billion to be distributed in the form of grants is “a vital minimum” to provide a credible European response, say the EPP, S&D, Renew Europe, Greens/EFA and GUE/NGL groups in their letter to the EU27 on the eve of the summit.
They promise to attach great importance to the way European funding will be spent and, in particular, to the respect of European strategic priorities such as digital, green and strategic autonomy.
On the issue of own resources, the pro-European forces warn that there will be no Parliamentary consent if a basket of own resources is not established. They call on the Commission and the European Council to undertake to legislate at European level to introduce compulsory levies on “major technological groups, major polluters and tax evaders” and at a level that will allow “at least the full repayment of the capital and interest on the loan” taken out. This work must be carried out in accordance with a timetable which will enable these levies to be made operational during the MFF 2021-2027, and from “2021” for the first own resources.
The question of a repayment plan for the loan taken out at European level to give visibility to the markets is also addressed.
Finally, the five political groups in the Parliament for whom democracy and the rule of law must not be collateral victims of the pandemic, recall their support for the establishment of a “robust” mechanism to ensure that European funds do not benefit those who weaken fundamental European values.
See the letter from the five political groups: https://bit.ly/2Bi3PwP (Original version in French by Lionel Changeur with Mathieu Bion and the editorial staff)