And that’s one of the sticking points.
Four fiscally hawkish nations including the Netherlands and Austria have been chafing at the idea that their taxpayers could wind up on the hook for spending in countries that were struggling financially long before the virus hit. If the bloc can agree that the plan at least represents a good basis to continue negotiating, that will probably count as a victory for its backers like German Chancellor Angela Merkel.
“Solidarity and cohesion in Europe have never been more important,” Merkel told German lawmakers on Thursday as she urged her fellow leaders to put aside differences to reach a deal before the summer break. “No country can survive this crisis alone and isolated. Our common goal will have to be to master this crisis together, sustainably and with a view to the future.”
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The aid program — especially the 500 billion euros allocated for grants — would offer critical support to the region’s hardest hit economies like Spain, Italy and Greece, which are projected to shrink by almost 10% this year. These countries have also been constrained by dangerously high debt levels while their peers in the north have been able to use national budgets straight away to support companies and workers.
Officials expect Friday’s debate to formally kick off weeks of intense negotiations. They warn that at least one more session will be needed to reach a deal — and that it will likely have to be in person so that the leaders can better control leaks and deploy the full repertoire of bilateral discussions and side deals to get the agreement over the line.
France and Germany, the countries that first agreed the plan should be anchored by grants rather than loans, have been lobbying governments across the bloc to figure out what it will take to bridge the differences.
The debate is further complicated by the fact that the proposed recovery fund will have to be agreed alongside the EU’s next long-term budget, which is set to kick in next year. Negotiations over the seven-year spending plan were already testy before the pandemic struck.
But the complication also offers an opportunity for tradeoffs.
The four budget hardliners are all net payers to the EU budget and Denmark, the Netherlands and Sweden received rebates totaling more than 1 billion euros on their contributions under the previous spending plan. Those rebates wouldn’t necessarily carry over into the next budget and the Danish have said explicitly that they care more about maintaining their rebate than winning changes to the structure of the recovery program.
But the fiscally prudent nations are not the only ones expected to take issue with the proposed plan today. Countries in central and eastern Europe are less well off but have taken a significantly lighter hit from the pandemic. They are worried that money that might have gone to helping them catch up with the West might be funneled away to the focal points of the virus.
Other stumbling blocs include the total amount that the EU could end up borrowing jointly, the timing of repayments and where the money will come from. Under the EU proposal, some of the money could come from new EU revenue streams including a digital levy, a tax on plastics and profits from a carbon trading system. Yet countries like Denmark have objected to using those levies to pay down the virus debt.
Underpinning it all are the long-standing differences over how far and on what basis EU members are willing to pool their finances and ultimately their sovereignty.
With the transatlantic relationship shaken by the presidency of Donald Trump and European powers struggling to articulate their response to an increasingly assertive China, Dutch Prime Minister Mark Rutte on Wednesday warned that the failure of the negotiations would pose a threat to the stability of the bloc.
“The EU is at risk of becoming a playing field instead of a player,” he said. “The central point is whether countries are willing to reform, that is crucial.”
–With assistance from Arne Delfs and Joao Lima.