5 things to
watch in Brussels’ crisis recovery blueprint
European
Commission plan will set off battles on multiple fronts.
By LILI
BAYER 5/26/20, 3:52 PM CET Updated 5/27/20, 4:42 AM CET
EU flags in
front of the European Commission in Brussels | Olivier Hoslet/EPA-EFE
Paris,
Berlin and their frugal foes have all made their opening bids. Now it’s
Brussels’ turn.
European
Commission President Ursula von der Leyen will on Wednesday present a
two-pronged plan to revive Europe’s economy — consisting of an updated
blueprint for the EU’s long-term budget and a new pot of money known as the
Recovery Instrument.
That
proposal will set off another intense battle, of the kind that always
accompanies EU budget negotiations. But the stakes will be even higher this
time, with more money in play and the Continent’s economic future on the line.
Angela
Merkel and Emmanuel Macron got out ahead of the Commission by unveiling a joint
proposal last week for a €500 billion Recovery Fund, with the cash raised
through EU borrowing but distributed as grants to regions and sectors hit
hardest by the coronavirus crisis. The “frugal four” alliance of Austria, the
Netherlands, Denmark and Sweden shot back at the weekend with a proposal that
insisted aid should come in the form of loans.
Von der Leyen’s
task is to come up with a proposal that could form the basis of a compromise
acceptable to the EU’s 27 member countries and the European Parliament, which
must all agree on the budget for it to pass. National parliaments will likely
also have to sign off on raising money for the recovery fund — a potentially
treacherous path.
"The French-German document is a good initiative,
it's something that can help reach a consensus." — Margarida Marques,
Portuguese MEP
As ever in
EU budget talks, the challenge is to give every national leader something they
can sell as a victory back home — a feat that is especially difficult during an
economic crisis when national coffers are under pressure and a host of
countries are vying for extra help from Brussels.
Here are
five issues to watch as the Commission unveils its proposals.
1. Grants
or loans?
The biggest
battle in the weeks ahead will be over whether recovery funding will involve
the Commission raising money on the markets that would be distributed as
primarily loans or grants to member countries.
Indebted
southern countries such as Italy are resisting the idea that getting help from
the EU would mean taking on more loans. But other countries, especially the
frugal faction, say any money borrowed should be repaid by the countries that
benefit.
The
Franco-German initiative has won fans in countries including Spain and Ireland.
"The
French-German document is a good initiative, it's something that can help reach
a consensus," said Margarida Marques, a Portuguese member of the European
Parliament from Prime Minister António Costa's Socialist party. Marques is one
of two MEPs appointed by Parliament to draft reports on the long-term budget —
a so-called co-rapporteur.
But
Austria, Denmark, the Netherlands and Sweden said in their joint paper that
they would not agree to "measures leading to debt mutualisation" and
want borrowed money to be distributed as loans.
They are
not the only ones with concerns.
Finland is
undecided: Debt mutualization has traditionally been a sensitive issue in
Finnish politics. Belgium is generally supportive of the Franco-German plan but
“we do feel that there is a need for a mix between grants and loans,” said one
person familiar with the Belgian government’s thinking. And Malta has made
clear to other governments that it prefers that loans make up a bigger share of
the new fund and is concerned about liability, according to one EU diplomat.
The
Commission is expected to propose a mix of grants and loans in an effort to
quickly forge a compromise, but expect a big fight nonetheless. One possible
compromise could be a mix where grants make up the bulk of the recovery plan
but countries pledge to implement economic reforms in exchange for the funds.
2. New
taxes?
One key
question is how the EU would pay for extra spending and ultimately repay
borrowed funds. Countries such as France and Poland have long pushed for new
taxes to help finance European expenditures. But others, such as Germany and
the Netherlands, have traditionally been wary of new revenue schemes for the
EU.
In its
original 2018 proposal, the Commission proposed three new sources of revenue
for the 2021-2027 budget, linked to a common consolidated corporate tax base,
the EU Emissions Trading System and non-recycled plastic packaging waste in
each member country.
Before the
coronavirus crisis, only the plastics-based proposal appeared to have a chance
of winning political approval. But the issue of new revenue sources is
definitely back on the agenda.
The
Franco-German joint paper referred to "fair taxation of the digital
economy within the Union," as well as to the establishment of a Common
Corporate Tax Base and carbon border adjustment mechanism.
Martin
Selmayr, a former secretary-general of the Commission, indicated earlier this
week that the Commission is set to propose new sources of revenue including a
carbon border tax, a digital tax and a Common Corporate Tax Base.
Nevertheless,
it remains unlikely that any brand-new tax proposal could garner the support of
all 27 member countries in time for the beginning of the new budget in January
2021. Leaders, however, could decide to keep negotiating on new sources of
revenue, with the aim of introducing them in a few years' time.
3.
Geopolitical ambitions
Von der
Leyen began her term with the aim of making the EU more of a global player — a
goal that requires money. “I believe Europe should have a stronger and more
united voice in the world,” the president wrote in her political guidelines.
“To remain a strong global actor, I want the EU to spend 30% more than we do
today on external-action investment in the next long-term EU budget, increasing
the total to €120 billion,” she added.
But
spending big outside the bloc on foreign policy when the EU is facing its
biggest-ever recession at home and governments will be short of cash now looks
politically difficult.
One
geopolitical ambition may be more achievable, however. Von der Leyen has
indicated that she will try to use the new Recovery Instrument to help fund a
strategic investment facility to “help invest in the key value chains that are
crucial for our future resilience and strategic autonomy.” Such a fund would
see the Commission acquire stakes in strategic EU companies, especially in
poorer member countries unable to invest directly.
But
programs that could help Europe take on a bigger global role have already been
on the chopping block: at the February leaders' summit on the budget, one
compromise floated involved cuts to planned spending for both military mobility
(making it easier for armies to move troops and equipment) and "neighbourhood,
development and international cooperation" (aid spending and cash for the
EU's neighbors).
"You still need incentives to get the frugals on
board, and rebates can be such an incentive." — EU diplomat
Some
countries insist the bloc should stick to plans to spend more on strategic
goals. In a phone interview on Monday, Latvian Foreign Minister Edgars
Rinkēvičs said it would be “very unwise” to pursue reductions in neighborhood
and development programs and the European Defence Fund.
4. Rebate
wars rebooted
The
unveiling of the new proposal is likely to reignite one of the most contentious
debates in the budget negotiation: whether some wealthier member countries
should get a discount on their contributions. These arrangements are often
known as rebates; the countries that receive them like to call them
corrections.
In its 2018
budget proposal, the Commission said that rebates should be phased out.
But some
governments are still resisting that idea. “We continue to request that
national contributions are limited, and we recall that the rationale behind
corrections remains valid,” Austria, the Netherlands, Denmark and Sweden wrote
in their recent joint paper.
Officials
in the frugal faction argue they face taking on an even bigger financial burden
to help stimulate the European economy — and thus their large contributions
should be adjusted downward to make them more manageable.
As in
previous rounds of negotiations, the frugals will face significant opposition.
Latvia’s Rinkēvičs noted that "we are really skeptical about rebates, we
think that this is a thing of the past and that we should get rid of this
policy."
But some
officials say that rebates could prove to be among concessions that help win
the frugal four's consent for a Recovery Instrument.
"You
still need incentives to get the frugals on board, and rebates can be such an
incentive," said one EU diplomat.
5. Shifting
alliances
The
traditional roles and alliances in the budget battle have shifted somewhat
during the coronavirus crisis, and the Commission’s new proposal is likely to
accentuate tensions among friends.
Eastern
countries previously allied with the south in the fight to preserve regional
development cash known as cohesion funding. Now they are increasingly worried
about recovery money flowing south — and eastern members helping pay for the
recovery in wealthier countries.
"The
EU budget has to be increased," Polish Finance Minister Tadeusz Kościński
wrote in a note to POLITICO over the weekend, adding that there should be no
"re-proritising" of cohesion funds.
But it is
not only eastern countries who want a piece of the pie. Belgium, for one, is
making similar noises.
Officials
acknowledge that the Commission's so-called allocation key — the template for
how recovery money would be distributed to member countries — will be a
contentious part of the negotiation, and carrots will have to be provided for
those that were not so badly hit by the crisis.
"The
distribution criteria are going to be difficult," the EU diplomat said.
"It's going to be tricky, how you can ensure to keep Eastern Europe on
board."
Paola Tamma contributed reporting.
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