EU leaders have struck a deal on a landmark coronavirus recovery package that will involve the European Commission undertaking mass borrowing for the first time. After days of sometimes bitter debate, the bloc’s heads of government agreed on a €750bn package aimed at funding post-pandemic relief efforts in the EU.

The deal was announced in a tweet from Charles Michel, the European Council president, while Emmanuel Macron, the French president, called it a “historic day for Europe”. The recovery fund centres on a €390bn programme of grants to economically weakened member states — a significantly smaller sum than the €500bn package originally proposed by Berlin and Paris in May.

Leaders also signed off on the EU’s next seven-year budget, which will be worth €1.074tn. The deal, orchestrated by Angela Merkel, the German chancellor, and Mr Michel, is the fruit of marathon negotiations under way in Brussels since Friday morning.  Leaders had struggled to settle an agreement in part because of the “frugal” states — Austria, Denmark, the Netherlands and Sweden — were opposed to the idea of permitting the EU to borrow money and hand it out as budgetary expenditure for member states. Even after the summit began, they continued to insist on paring back the amount of grants that the commission would be permitted to hand out, before finally settling on the €390bn figure. 

The price for this was a boost to the budget rebates that those frugal nations receive as a legacy of the UK’s membership of the EU. Margaret Thatcher, the former British prime minister, won the prized payback mechanism in 1984, but recently countries led by France have pushed for the abolition of the rebates after Brexit. 

Instead they re-emerged as an important bargaining tool to win over frugal countries in the debate over Europe’s unprecedented response to the coronavirus. Austria’s annual reduction will be doubled to €565m a year compared with previous proposals, while the Netherlands’ rebate will jump to €1.92bn from €1.57bn. Denmark and Sweden will also receive increases in comparison with earlier plans on the table. Germany’s discount will be unchanged. The protracted negotiations on the plan laid bare deep divisions over governments’ willingness to pool their financial firepower. Splits had to be overcome through a complex patchwork of compromises. 

Mark Rutte, the Dutch prime minister, secured an emergency brake that would allow any country to raise concerns that another was not honouring promises to reform its economy, and temporarily halt transfers of EU recovery money by Brussels. But, to accommodate the sensitivities of other governments, the mechanism is time limited. The final text says EU leaders should “as a rule” take no more than three months to address any complaint. The final decision is formally left in the hands of the EU commission.

Another flashpoint during the talks was how to link the money to respect for the rule of law. Critics have claimed that there have been violations of judicial independence in Poland and have alleged that democratic norms have been undermined in Hungary. But a push for tough conditions led to threats from Hungarian prime minister Viktor Orban to block the entire recovery package. On this issue, a group of leaders led by Ms Merkel and Krisjanis Karins, the Latvian prime minister, worked on a compromise plan that would allow a weighted majority of EU governments to block payments to a country over rule-of-law violations.

The commission would also be charged with coming up with proposals on protecting the EU budget and recovering spending more effectively against fraud.  The summit, which stretched from Friday morning into the early hours of Tuesday, became the second-longest meeting of leaders in the bloc’s history, falling just shy of the record set at the Nice summit in 2000.

source: ft.com