EU leaders launch talks on $840bn coronavirus recovery fund

EU leaders have launched negotiations on a huge recovery fund to revive a European economy ravaged by the coronavirus outbreak, deeply divided on the way forward.

The European Union faces its biggest recession in the bloc’s 63-year history, and member states are under pressure to look beyond their own borders and to find ways to lift the whole continent.

On the table at Friday’s virtual summit is a proposal from European Commission chief Ursula von der Leyen for a 750-billion-euro ($840bn) rescue fund that, if accepted, would mark an historic milestone for EU unity.

“This is a chance Europe can’t afford to miss,” Von der Leyen said, just before the leaders began their video conference.

“We have a collective responsibility to deliver,” European Council President Charles Michel said on Twitter. “Now is the time to engage.”

But opposition is fierce from countries known as the “frugal four” – the Netherlands, Sweden, Denmark and Austria – who have promised to fight to rein in the spending.

“It is clear that we expect no essential agreements at this summit,” said a government official in Germany, which takes over the EU’s rotating presidency on July 1 and will drive the negotiations.

A French source called it a “warm-up round” that would “take the temperature” before leaders arrive at a compromise in late July.

Rival ideas

Lined up against the “frugals” are EU countries such as Italy and Spain that were the first and hardest hit by the pandemic, and quickly asked for help from their better-off partners.

Crippled with overstretched finances, these countries are unable to fight the recession with a wave of extra spending and are looking for a highly visible act of solidarity.

The commission’s plan is inspired by a German and French proposal in which EU money is raised on the financial markets to spend EU-wide in the biggest slice of joint borrowing ever undertaken by the union.

By endorsing the plan, German Chancellor Angela Merkel broke Germany’s long-held taboo against pan-European pooled borrowing, catching the “frugals” off guard.

They have promised nonetheless to fight on, most notably in insisting that the funds should be released as loans with strict conditions and not as grants or subsidies.

Speaking in the Swedish parliament on Thursday, Prime Minister Stefan Lofven said it was important that funds raised should not “be handed out as grants, without any requirements for repayments, thus sending the bill to future taxpayers”.

In an interview with the AFP news agency, Italian Prime Minister Giuseppe Conte tried to assuage these concerns, assuring that the money would build “a better Italy” that would be more modern and greener.

Green plan

To help pay for the recovery plan, the proposal floats EU-wide taxation on big tech, or carbon emissions, to provide the European Commission with funds of its own.

Complicating matters further, the recovery fund is linked to the EU’s long term, seven-year budget which is being negotiated in parallel.

This has countries usually on the receiving end of EU spending – many in Eastern Europe – worried that funds historically coming their way could be cut because of the recovery plan and they have also threatened to block the talks.

The fund, as well as the EU budget, requires the unanimous approval of the EU’s 27 member states, making compromise difficult.