The Heads of State or Government of the European Union have been negotiating arduously since Friday 17 July in Brussels to reach unanimous agreement on the post-Covid-19 Economic Recovery Plan, which will be financed by a joint loan from the European Commission on behalf of the EU27 (see EUROPE 12530/1).
They also have to find a compromise on the EU’s Multiannual Financial Framework (MFF) outside the recovery plan, amounting to €1,074.3 billion over the period 2021-2027 (see EUROPE 12529/1).
On Monday morning at around 5:30 am, the President of the European Council, Charles Michel, brought the EU27 together for a plenary session that lasted just a few minutes. According to our information, he informed them that a new “negotiating box” for the post-2020 EU budget would be sent to delegations before the next plenary session, to be convened on Monday at 4:00 pm.
The next negotiating box will provide for subsidies valued at €390 billion as part of the Recovery Plan, as well as lower budget rebates for the net contributor countries benefiting from them (Austria, Denmark, the Netherlands, Sweden and Germany).
It is above all the duration of this marathon summit, which was originally planned to take place over 2 days, that is surprising. It would require going back to 2000, and the Nice European Council, to find such lengthy negotiations between European leaders. After a first budgetary failure in February, Mr Michel is now trying to reach a hard-fought agreement, trying to thwart the predictions of a second emergency EU summit.
Throughout the weekend, the Netherlands, the leader of the so-called ‘frugal’ countries (the Netherlands, Sweden, Denmark, Austria), irritated its EU partners to the point that some leaders, including the Franco-German duo, threatened to leave the summit. Italy openly criticised the attitude of these countries, while the Hungarian Prime Minister, Viktor Orbán, accused his Dutch counterpart, Mark Rutte, of hating him because of the Rule of law in Hungary.
The frugal countries, as well as Finland, have thus long stood up to the Franco-German pair and to the countries that are major beneficiaries of the European Recovery Plan (Italy, Spain, etc.), which is designed to help the Member States of the European Union to revive their economies affected by the pandemic.
On Sunday evening, they called for a €700-billion European recovery plan, half of which would be made up of grants and loans, whereas the Commission had proposed a €750 billion plan at the end of May, including €500 billion in grants (see EUROPE 12494/1).
In an attempt to unblock the situation, Charles Michel then proposed to reduce the level of subsidies in the recovery plan to €400 billion, while increasing the share of loans to €350 billion. The size of the recovery plan as a whole would therefore remain at €750 billion,
but the frugal countries’ hard line appeared to hold up. The figure of €375 billion in subsidies in the recovery fund was circulating in the early hours of Monday morning as a possible compromise.
These countries even lobbied for increased rebates.
Austria’s Federal Chancellor Sebastian Kurz said on Sunday that he was “happy that our group has grown”, referring to Finland’s endorsement of the quartet’s position. “We have once again strengthened our negotiating position”, he said.
But on the side of the countries benefiting from the post-Covid-19 recovery plan, irritation was palpable. The Italian Prime Minister, Giuseppe Conte, is said to have thrown a barb at Mr Rutte: “You can be a hero in your country for a few days. But after a few weeks, you will be held accountable to all European citizens for blocking an adequate and effective European response”.
António Costa, the Prime Minister of Portugal, also called on frugal countries to “make an effort”.
Throughout the weekend, the Franco-German duo displayed a common joint course of action, in plenary sessions as well as in plurilateral meetings, refusing to allow subsidies from the recovery plan to be less than €400 billion.
For French President Emmanuel Macron, a compromise cannot be reached “at the price of European ambition”. From French sources, it is argued that after a moment of high tension, the Franco-German pair pounded the table, after which the frugal countries began to move.
In this vein, the President of the European Central Bank, Christine Lagarde, who was not attending the EU summit, called for an ambitious agreement rather than a quick deal.
Uncertainty about the link between the rule of law and the EU budget
The proposal to make the granting of EU funds conditional on respect for the Rule of law, which is very important for the European Parliament and Mr Michel, was reportedly not discussed until Saturday at dinner, during which the importance of respecting the fundamental and democratic values of the EU was not contradicted.
“If someone is not ready to accept the Rule of law, they should leave Europe immediately! He should not be financially punished”, Hungarian Prime Minister Viktor Orbán even said on Sunday morning on the sidelines of the summit.
He did not categorically reject the proposal put forward by Mr Michel, believing that it would take “several weeks” to materialise a solid mechanism. Instead, he called for the so-called Article 7 procedure against his country to be completed, so that the EU Council could take a formal decision on the situation of the rule of law in Hungary. And he called for stricter control of European funds allocated to NGOs, which he accuses of playing a highly political role in the Member States.
On the question of the rule of law, Hungary is allied with Poland and Slovenia.
A majority of leaders, particularly in the liberal camp, nevertheless remain in favour of creating conditions for the EU budget. “Europe is not a grocery store (...). It is sad to recall in 2020 that the EU is also, above all, about rights and values”, said Luxembourg Prime Minister Xavier Bettel, refusing that “the backbone” of the European project is “questioned by some”. If it is not possible to link the Rule of law to budgetary issues, “we need a rendez-vous clause to talk about it”, he added.
For Mr Kurz, the rule of law is “a serious matter that should not be subject to lazy compromises”. “It will certainly still need to be debated and discussed”, he considered.
On Sunday evening, Mr Rutte and Mr Kurz were also accused by other delegations of using the issue of the Rule of law to try to obtain more cuts in the budgetary amounts to be allocated to the recovery plan.
A revised ‘negotiating box’ amended downwards
After a tense dinner on Friday evening, and a meeting on Saturday morning in the so-called ‘Washington’ format (France, Germany, the Netherlands, Italy, Spain), Charles Michel tabled on Saturday morning a revised negotiating box including the European Recovery Plan and the 2021-2027 Multiannual Financial Framework (MFF).
Its objective is to get the discussions that had gotten bogged down the day before off to a good start. And above all, have Mark Rutte feel better about it.
This compromise proposal already gave the frugal countries the upper hand on certain points.
According to this document, the overall size of the recovery plan would have remained at €750 billion, but the level of subsidies would have been reduced to €450 billion (compared to the proposed €500 billion). The difference of €50 billion would have been offset by an increase in the level of lending.
The endowment of the Recovery and Resilience Facility, the core of the European Recovery Plan, would be increased from €560 billion (€310 billion in grants and €250 billion in loans) to €625 billion (€325 billion in grants and €300 billion in loans).
In order to reduce the amount of subsidies, Mr Michel proposed to reduce the appropriations for the following programmes: – the Horizon Europe research framework programme (reduction of €2 billion to €11.5 billion); – the EU4Health programme (reduction of €2.7 billion to €5 billion); – funding for rural development (reduction of €5 billion to €10 billion); – the InvestEU programme (reduction of €30.3 billion to €11.5 billion). Worse still, the €26 billion initially earmarked to support company solvency is reported to be eliminated! And the Just Transition Fund would be maintained at €30 billion.
Mr Michel also proposed a compromise on the governance of the Recovery and Resilience Facility, in order to bring the Netherlands to an agreement.
An ‘emergency brake’ has reportedly been introduced. It would allow at least one State with reservations about the recovery plan presented by another to open, “within 3 days”, a debate among the EU27 at the level of the Ecofin Council or, in the event of disagreement at ministerial level, the European Council.
The angry words – unanimity, right of veto – were not written in black and white in Charles Michel’s proposal. But the wording was ambiguous enough to satisfy the Dutch, who insist on close monitoring of the proper use of European funds for which they have democratic responsibility and, if necessary, possibly blocking their disbursement.
The Netherlands, the only country to openly call for unanimous decisions of the EU27 to decide on disbursements, felt that the idea of this emergency brake was a step in the right direction.
On the subject of rebates, another thorny issue, the ‘negotiating box’ presented on Saturday aimed to increase the flat-rate corrections for Denmark (€222 million), Austria (€287 million) and Sweden (€823 million) over the period 2021-2027. Those of Germany (€3.671 billion) and the Netherlands (€1.576 billion) remained at the same level as in the 10 July draft.
According to Mr Michel’s proposal, the amount of the MFF excluding the European Recovery Plan commitment appropriations still amounted to €1.0743 billion over the period 2021-2027. With reductions for some programmes deemed justified by additional funds provided under the recovery plan. This is the case for the research programmes Horizon Europe, reduced by €5 billion, and InvestEU, reduced by €10 billion.
On the creation of new own resources to feed the EU budget, a new own resource related to non-recycled plastic packaging waste has been introduced from 2021, according to Mr Michel’s plan.
The Commission has been 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).
Link to the ‘negotiating box’ of 18 July: https://bit.ly/39cEOQM
Link to the ‘negotiating box’ of 10 July: https://bit.ly/38HuRdA (Original version in French by Lionel Changeur, with Mathieu Bion, Agathe Cherki, Marion Fontana, Camille-Cerise Gessant and Pascal Hansens)