EU leaders back budget reboot for coronavirus
recovery
European Commission tasked with drawing up economic
rescue plan but big questions remain unresolved.
By DAVID M. HERSZENHORN 4/24/20, 1:27 AM CET Updated
4/24/20, 1:50 AM CET
Get ready for the biggest, baddest budget the EU has
ever seen.
EU national leaders on Thursday directed European
Commission President Ursula von der Leyen to draw up plans for a new long-term
financial blueprint for the bloc that would also drive an economic recovery
from the coronavirus with a combination of loans and grants. The leaders did
not agree on a figure for the recovery effort, which some Commission officials
have proposed should be up to €2 trillion.
The leaders delivered the instructions to von der
Leyen at their latest virtual European Council summit — a videoconference in
which they discussed not just the devastating economic toll of the pandemic,
but all aspects of the crisis, including the challenge of when and how to lift
containment measures.
The effort to reinvent the Mutiannual Financial
Framework (MFF) — the EU's regular, seven-year budget — to also serve as an
emergency rescue program is a potentially treacherous gambit aimed at
circumventing a fierce fight among EU leaders over how to finance a recovery
fund.
Among the risks is the possibility that a budget deal,
already extremely late compared to previous cycles, will be further delayed,
potentially jeopardizing implementation of a wide range of EU programs that
could stall when the current budget plan runs out on December 31.
"I am convinced that there is only one instrument
that can deliver this magnitude of tasks behind the recovery and that is the
European budget clearly linked to the recovery fund" — European Commission
President Ursula von der Leyen
But there is an array of other potential problems,
including legal hurdles to the unusual financing measures being contemplated by
the Commission, questions over whether the strategy could be put into action
quickly enough, and uncertainty over various technical details that would
accompany such an unprecedented leveraging of the budget commitments of EU
nations.
While von der Leyen said she viewed the idea as the
only viable solution, it is far from clear that leaders on the European Council
will ultimately accept what the Commission puts forward, especially the higher
national contributions that will be required at a time when all EU economies
are now contracting and some headed for deep recessions.
"I am convinced that there is only one instrument
that can deliver this magnitude of tasks behind the recovery and that is the European
budget clearly linked to the recovery fund," von der Leyen said, appearing
with Council President Charles Michel at a post-summit news conference.
"The budget is time-tested," she said.
"Everybody knows it. It is trusted by all member states and it is per se
designed for investment, for cohesion and convergence." Von der Leyen
added: "The next seven-year MFF budget has to adapt to the new
circumstances, post-corona crisis. We need to increase its firepower to be able
to generate the necessary investment across the whole European Union."
But from their own post-summit comments, it was clear
that national leaders remain fiercely divided over some of the most fundamental
questions about financing a recovery fund, including whether the package should
deliver assistance in the form of grants — as favored by the hardest-hit
countries like Italy and Spain — or with loans.
Some EU countries such as Germany and the Netherlands
have strongly resisted calls for some new form of joint debt instrument,
insisting that ultimately each nation should be responsible for its own balance
sheet and that it would be wrong to create entanglements that even
theoretically could put credit ratings at risk, or lead to unexpected
liabilities.
"We have talked about this, not always in a
uniform way," German Chancellor Angela Merkel said of the continuing
debate. "Should it be done via grants or loans? How should the financing
be done?"
French President Emmanuel Macron also acknowledged
that sharp disagreements remained, but he came out squarely in favor of grants,
which could also come in the form of transfers within the EU budget.
"There are disagreements that remain — it’s
true," Macron said. "It’s not so much about common debt but rather
knowing whether it’s used to finance loans or real transfers."
He said adding further debt on hard-hit countries
would be counterproductive. "It doesn’t rise up to what is needed because
these loans will be added to the debts that these countries have already,"
he said. "I think in the moment we are going through, these transfers must
be transfers, real budgetary transfers." But Macron added, "On that,
there is no consensus today."
The leaders' last videoconference nearly broke down in
rancor as Italian Prime Minister Giuseppe Conte and Spanish Prime Minister
Pedro Sánchez pushed for joint debt to finance a recovery plan. By contrast,
during and after Thursday's meeting, leaders appeared to be taking great care
to avoid inflaming arguments.
Michel and von der Leyen both stressed that some parts
of the EU and some sectors in the EU economy were suffering heavier damage and
should get the most help. At the same time, Michel emphasized that further work
was needed to decide how best to structure the recovery plan, and he expressed
satisfaction that leaders were unanimous in the need to act forcefully and
fast.
Michel noted that leaders during the videoconference
had also given their political endorsement to emergency economic programs
totaling more than €500 billion already approved by finance ministers, and had
called on national parliaments to approve the measures so they are operating by
June 1.
During the post-summit news conference, von der Leyen
declined to give a precise timeline for the new MFF or the recovery proposal.
But in response to questioning by Merkel during the summit, she told leaders
that the Commission was aiming for May 6, two officials who listened to the
videoconference told POLITICO. "Don't forget to talk to us," Merkel
replied.
Reaching agreement on the MFF is always excruciatingly
difficult and an initial effort led by Michel at a summit in February failed to
clinch a deal. Many officials and leaders also believe that it will be
impossible to reach an agreement without a physical summit where heads of state
and government can negotiate face to face. But it is not clear when the health
situation will permit such a gathering.
Dutch Prime Minister Mark Rutte said it would be
"very helpful" to have an agreement before summer, and that a
traditional summit would "help enormously."
Rutte, who is a leader among the so-called
"frugal" countries who are net contributors and advocate for a
smaller EU budget, said that if direct grants are needed, then the Commission
should consider how to reallocate money from other programs. "See what
makes sense in terms of reprioritizing," he said.
'Unprecedented' impact
Conte, the Italian prime minister who in recent weeks
has complained of a lack of EU solidarity, said he was extremely pleased with
the results of the virtual summit.
"Great progress, unthinkable until a few weeks
ago," he said in a statement.
Those remarks likely came as a major relief to von der
Leyen, who had been accused of insensitivity for at one point dismissing a
joint financing proposal called corona bonds as a mere "slogan."
On Thursday, von der Leyen emphasized that she was
aware that some countries were hurting more than others, and she also stressed
that the health crisis itself was far from over.
"The health situation is by far not fully under
control and many member states have not yet reached the peak," she said.
"But at the same time, we already know that the scale, the speed and the
impact of the economic crisis is unprecedented in modern times. While the
pandemic knows certainly no borders and is blind to nationalities, some
countries are certainly hit harder than others and unless we act decisively and
collectively, the recovery will not be symmetric and divergences between member
states will increase."
Von der Leyen would not peg a specific number for the
proposed recovery fund, but she said the Commission would propose an increase
in the so-called "headroom" between planned national contributions to
the EU budget and the maximum the bloc could theoretically call upon.
She said the ceiling should rise from the current 1.2
percent of Gross National Income (GNI) to around 2 percent of GNI for the first
two or three years of the budget plan. That increase would allow the EU to make
loan guarantees for a large financing package for the recovery.
"We are not talking about billion, we are talking
about trillion," von der Leyen said. She also said that the Commission
would pursue a balance in the debate over grants versus loans, and that she was
heartened national leaders supported the idea of using the MFF as a recovery
tool.
Lili Bayer, Jacopo Barigazzi, Hans von der Burchard
and Rym Momtaz contributed reporting.
7 hours ago
Italy had accused other EU countries of not doing
enough to help
A plan for
injecting billions of euros of emergency aid into Europe's battered economies
has been agreed by EU heads.
Meeting via
video, they agreed to set up a massive recovery fund, closely tied to the
bloc's seven-year budget.
They also
confirmed that €540bn (£470bn) of financial support would be released through
existing mechanisms from 1 June.
European
Commission chief Ursula von der Leyen said the fund would mobilise €1 trillion
of investment.
There has
been bitter argument over how to fund the much-needed aid. But Italy's Prime
Minister Giuseppe Conte said "great progress" had been made on
Thursday.
Italy -
which has had the deadliest outbreak in Europe to date - had urged its EU
partners, especially the richer countries of northern Europe, to show more
solidarity.
Very aware
of the negative headlines of late, depicting EU leader v EU leader - the rich
and frugal North v the suffering, spendthrift South - there was a determination
at Thursday's summit to avoid the verbal fisticuffs.
There was
no walkout by Angry Italy. No fuming about Eurobonds by the Dutch. Instead EU
leaders signed off, as expected, on a pre-agreed €500bn euro emergency
financial package and on guidelines for lifting Covid-19 restrictions.
Heated
discussion about a recovery plan for European economies after the health crisis
was left for another day.
The buck
passed to the European Commission, which now has the unenviable task of
conjuring up a proposal acceptable to divided EU opinion.
Today at
least, EU leaders were keen to present a united front. Their underlying
intended message: "Yes, we argue but EU solidarity exists. We muddle our
way through in the end."
Leaders
also agreed to follow guidance from the EU Commission - the organisation's
executive arm - on easing their respective lockdowns once the spread of the
virus had reduced for a "significant period".
Details of
how the longer term recovery plan will be funded will be discussed at another
videoconference on 6 May.
There had
earlier been divisions over sharing the burden, with the Netherlands, Denmark,
Austria, Germany and Sweden opposing France's proposal on how to support Italy
and Spain in their recovery.
But Prime
Minister Conte expressed satisfaction with what had been agreed, calling it
"an important milestone in European history". The French president,
Emmanuel Macron said that divisions remained.
"I'm
saying this sincerely: if Europe raises debt to loan to others, that won't live
up to the response we need," Mr Macron said.
Ahead of
Thursday's talks, German Chancellor Angela Merkel warned that her country was
not seeing "the end phase but still just the beginning".
"We'll
have to live with this virus for a long time," Ms Merkel told parliament,
adding that Germany should be ready to "make very different, meaning much
higher contributions to the EU budget".
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