The Heads of State or Government of the European Union embarked on difficult negotiations on Friday 17 July in Brussels to reach unanimous agreement on the proposed €750 billion post-Covid-19 Economic Recovery Plan.
They also hope to reach a compromise on the EU’s 2021-2027 Multiannual Financial Framework (MFF), which in the latest proposal by the President of the European Council, Charles Michel, amounts to €1.074 trillion (see EUROPE 12529/1).
On Friday, the leaders discussed some sticking points. Denmark has reportedly proposed a MFF of €1.050 trillion, while the battle raged over rebates and governance arrangements for the future Recovery Plan. Mr Michel interrupted the debate before 6 p.m. in order to hold consultations with certain countries. At press time, the leaders were scheduled to meet for dinner at about 8 p.m.
The draft Recovery Plan is encountering strong resistance from the four so-called ‘frugal’ countries, namely the Netherlands, Sweden, Denmark and Austria.
On 10 July, Charles Michel presented a new ‘negotiating box’ that includes concessions to the frugal countries (see EUROPE 12525/1).
Upon arrival in Brussels, Dutch Prime Minister Mark Rutte estimated the chances of a summit agreement at “less than 50%”. He stressed that he wanted to “negotiate with arguments, not vetoes”.
Major disagreements. “We are all embarking on this European Council with enthusiasm, but I have to say that there are still very, very important disagreements”, said German Chancellor Angela Merkel. “So I am not in a position to say that we will be able to reach an agreement this time”, she added.
On 18 May last, France and Germany presented the outlines of this Recovery Plan by advocating the granting of €500 billion in subsidies (see EUROPE 12489/1).
French President Emmanuel Macron spoke of “a moment of truth and ambition for Europe”. “I’m confident, but cautious. [...] We will do everything we can to reach an agreement”, he said.
Italian Prime Minister Giuseppe Conte said he was “perfectly aware of the differences that exist” and confirmed his great “determination” to overcome them. Mr Conte addressed the following message to the frugal countries: “It’s not just about the flow of capital. We are developing an economic and social response [...] to make Europe more resilient, more competitive on the world stage”.
Portuguese Prime Minister António Costa hoped for a “quick agreement” this weekend.
Xavier Bettel, the Prime Minister of Luxembourg, said that “there [should] be no lack of solidarity”. But “writing a blank check” is out of the question, he warned.
Amount of the Recovery Plan. Charles Michel has proposed an envelope of €750 billion for the European Recovery Plan, including €500 billion in grants and €250 billion in loans. This envelope would be financed by loans taken out by the Commission on behalf of the EU27 at advantageous rates.
Loans/grants. The proposal for the Recovery and Resilience Facility, the flagship instrument of the Recovery Plan, includes €310 billion in grants and €250 billion in loans.
The remaining €190 billion (for a total of €500 billion in grants) are distributed in different programmes and budgetary instruments: research, health, rural development, the Just Transition Fund, etc.
The frugal countries and Finland want to reduce the amount of the recovery fund and favour loans. According to sources, it is this €190 billion fund that could be cut or reallocated via loans to satisfy these countries.
Allocation criteria. Mr Michel proposes redistributing the money in two stages: 70% of the total would be paid out in 2021 and 2022 based on specific criteria (population, unemployment, GDP over the last five years), and 30% would be paid out from 2023 based on the change in GDP in 2020 and 2021 to better take into account the impact of the pandemic on Member States.
Andrej Babiš, the Czech Prime Minister, criticised the allocation criteria, especially the use of the 2015-2019 unemployment rate, “which has nothing to do with the pandemic”. According to him, the impact of the crisis, which will be known next year, will be calculated mainly in terms of a drop in GDP. Charles Michel’s proposal is better than the Commission’s proposal of last May (see EUROPE 12494/1), but the 70/30 split is still problematic, Mr Babiš concluded.
Conditionalities. According to Prague, the money from the Recovery Plan should be spent not only on the environmental transition, but also specifically on helping the automotive industry.
Poland does not see the need for a conditionality on the basis of energy transformation. “Poland has made huge efforts to promote renewable energy, but the pace of climate reform must be reasonable”, said Prime Minister Mateusz Morawiecki.
Governance. Mark Rutte stressed the importance of implementing reforms when receiving financial assistance from the EU. “We are in favour of solidarity, but in exchange for reforms. And we want guarantees that the reforms are actually implemented”, he said.
The Netherlands is demanding a procedure for approving national plans requiring unanimity in the EU Council, whereas Mr Michel is sticking with qualified majority voting.
Charles Michel proposes beginning reimbursements as early as 2026, as opposed to 2028 in the Commission’s proposal. These repayments would end no later than 2058.
Rule of law. Another stumbling block is the creation of a link between the disbursement of European funds and respect for the EU’s fundamental values.
The EU will have to show that the Rule of law is “something we all care about”, Mr Bettel said.
European Parliament President David Sassoli said the EU “is not just a cash machine. We must devise a future that defends our core values”.
Poland does not agree with “an arbitrary approach to the Rule of law”, as the so-called ‘Article 7’ procedure of the Treaty is still pending. “We believe that this procedure must first be concluded. The combination of different regulations and such attempts to circumvent the EU Treaty is a threat to much-needed legal certainty”, Mr Morawiecki emphasised. Hungary also rejects any conditionality in the area of the Rule of law.
President Michel proposed that in the event of failures, the Commission would propose measures to be approved by the EU Council by qualified majority
Size of the MFF. President Michel proposed an amount of €1.074 trillion from 2021 to 2027.
Estonian Prime Minister Jüri Ratas said it was important for the Baltic States to have “fairer” direct payments to farmers.
Farmers from the Baltic countries, in Brussels to plead their case, point out that, according to the current proposals, “another generation of Baltic farmers would have to live with this injustice, as the three countries would only receive 77% of the EU average in direct payments by 2027”.
Gitanas Nausėda, the Lithuanian president, said cohesion policy and other traditional policies “remain very important”. “The recovery fund should not be financed at the expense of the MFF”, he said.
Spain and Ireland, in particular, defended the Common Agricultural Policy (CAP) budget. Along these lines, Poland said it would like to achieve the maximum the of funds allocated “to cohesion, to the modernisation of our agriculture, and to energy transformation”.
Own resources. Another thorny issue is the creation of new own resources for the EU budget.
A new own resource related to non-recycled plastic packaging waste would be introduced from 2021, according to Mr Michel’s plan. The Commission would be invited to come forward in 2021 with proposals for an EU border carbon adjustment mechanism and a digital tax (to be introduced by 2023 at the latest).
Poland welcomed the exclusion of the ETS system from the list of new own resources. It supports a digital tax and a border carbon adjustment mechanism.
Rebates. The Czech Republic and Poland protested against the increase in rebates, which will reportedly reach €45 billion.
France is calling for a gradual elimination of these rebates, which, in its view, no longer have any place after Brexit.
Birthday presents. On Friday, the EU27 celebrated two birthdays: Angela Merkel’s 66th and António Costa’s 59th. The Chancellor received bottles of white Burgundy from Mr Macron, Belgian chocolates from Mr Michel, a silver flask of rose oil from the Bulgarian President, and a German translation of the novel ‘Blindness’ (by Portuguese Nobel Prize for Literature recipient José Saramago) from Mr Costa.
Mrs Merkel presented Mr Costa with a facsimile of a 17th-century map of Goa, the former Portuguese colony from which his ancestors came.
The Portuguese Prime Minister treated each of his colleagues to a personalised Covid-19 kit, with masks in different colours. (Original version in French by Lionel Changeur, with Camille-Cerise Gessant, Mathieu Bion, Pascal Hansens, Marion Fontana and Agathe Cherki)