mobanmarketEuropean Council President Charles Michel set very low expectations for a leaders’ summit on Friday, and he can now boast the results were as meager as he predicted, maybe even worse.
After a roughly four-hour videoconference to discuss a proposed €1.85 trillion budget and coronavirus recovery package, the EU’s 27 heads of state and government did little more than reaffirm some entrenched differences on the most fundamental issues, including: the total size of the initiative; a scheme to take on €750 billion in joint debt to provide recovery “grants;” the so-called rebates that off-set the overall payments by some big contributors to the bloc’s budget; and the prospect of new “own resources” — revenue from taxes and levies that could be used to pay the giant debt bill down the line.
In the end, Michel and European Commission President Ursula von der Leyen could only claim consensus on the need for an ambitious, aggressive response to the economic shock of the coronavirus pandemic, and on the perhaps vain shared hope of reaching a swift deal by the end of July. To that end, Michel said he would convene a in-person summit in mid-July, the first such gathering since the outbreak of the virus, in order to undertake what are expected to be ferocious negotiations.
An initial effort by Michel to broker a deal on the EU’s long-term budget, the Multiannual Financial Framework (MFF), fell short in February. Then coronavirus hit, causing EU countries to declare lockdown measures, and seal their borders.
Across the EU, more than 125,000 people died, and national economies shriveled — with a projected decline in economic output of 7.5 percent this year. In response to that drop, unprecedented since the Great Depression, the Commission came forward with the revised budget plan, bolted together with the proposal for joint borrowing by EU countries on an unprecedented scale.
But even the pandemic and accompanying economic shock was not enough to erase the fierce, fundamental disagreements over economic policy among national governments. While the EU’s biggest members, Germany and France, came out in support of a €500 billion grants program for the recovery, the Frugal Four countries of Austria, Denmark, the Netherlands and Sweden have staunchly opposed the idea of their citizens taking on debt to finance grants for other countries.
At the end of Friday’s videoconference, officials said those fundamental differences were articulated loudly and clearly and there was no immediate indication of how they might be resolved. Even some countries that generally support the overall approach expressed serious concerns, particularly that the Commission had not developed a sufficient formula for allocating the recovery money in a way that would clearly target the countries and sectors of the economy hit hardest by the crisis. There were also questions about “conditionality” — the strings that might be attached to recovery funds, especially if disbursed as grants.
“We don’t underestimate the difficulties,” Michel said at a closing news conference. “And on different topics, we observed that it is necessary to continue to discuss.”
Later he added: “We will need to work very actively on different, difficult topics, like the size, the amounts for the MFF, and for the recovery fund, the rebates related to the MFF, the question [of] grants vs. loans. The conditionality is also a difficult topic — it’s not a surprise. Or another difficult question is related to the criteria and the importance for some member states, or for many member states, to consider that the criteria should be more linked to the consequences of COVID-19.”
The low expectations, seemingly minimal preparation to push leaders to resolve their differences, and the absence of any real forward motion prompted some officials and diplomats to issue blistering criticism of Michel.
“If you’re asking me whether he came across as clever or strong, I wouldn’t go that far,” said a national official who listened to the summit proceedings. “Once again it looked poorly organized,” the official said. “He simply doesn’t inspire confidence, that’s it.”
A senior EU official offered a similarly bleak assessment: “It has become clear there is a long and arduous road we will have to travel in just a few short weeks if we are to reach agreement by the end of July.”
Merkel’s warning
That leaders appeared to have dug in their heels was all the more remarkable given that the most influential in their ranks, German Chancellor Angela Merkel, issued a stark and sober warning about the gravity of the crisis.
“The economic implications of the pandemic are very, very severe,” Merkel said after the videoconference, adding, “It is no exaggeration to say that we are facing the biggest economic challenge in the history of the European Union. The measures we take must be in line with this. And that includes the fact that the measures must not come at some point, but must come in such a way that they also create confidence in the economic reconstruction of Europe after this pandemic.”
That Germany, long synonymous with economic austerity, had come out in support of a plan to take on a large amount of joint debt was viewed by many as a possible watershed moment in EU history. And with Germany taking over the EU’s rotating presidency on July 1, there is no doubt Merkel’s influence will be felt in the upcoming negotiations. But the fierce resistance of the frugal countries also illustrated that star power has its limits, and reflected the confidence of fiscally cautious countries like the Netherlands whose rainy-day funds proved extremely valuable when the pandemic hit.
French President Emmanuel Macron echoed Merkel’s call for bold action to answer the crisis. “Europe must rise to the occasion,” Macron tweeted. “Let’s reach an agreement among the 27 in July.”
Underscoring the difficulties that lie ahead, not just in clinching a deal among the 27 heads of state and government, but in the months beyond, von der Leyen acknowledged that the European Parliament, and the national legislatures across the EU, would need to give their unanimous backing to the budget proposal. She said she hoped EU countries would at least act in self-interest and that skeptics would at least recognize the emergency circumstances.
“I think it is appropriate to have this kind of situation because it’s a one-off,” von der Leyen said. “It’s an extraordinary, unprecedented approach to this historic crisis and therefore the full democratic legitimation from all levels is important for us.”
“I am convinced that in all member states,” von der Leyen continued, “as we all suffer from this very severe economic crisis, and we know we are at the beginning not at the end, the understanding how important, how urgent it is for each member state’s own well-being economically and socially is there.”
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However, the fact a firm date was not even set for the mid-July summit indicated just how much heavy lifting remained to be done, as Michel promised to come forward with a revised proposal for leaders to consider.
Michel and von der Leyen had hoped, at the very least, that they could claim unanimity among leaders’ about the need to act as quickly as possible, but even on that front there were signs of disagreement, with Dutch Prime Minister Mark Rutte noting after the summit: “There’s no big damage done if the heads of state don’t reach an agreement mid-July.”
Spanish Prime Minister Pedro Sánchez, however, begged to differ. “Europe must give a response to the height of the COVID-19 crisis and do it rapidly,” Sánchez posted on Twitter. “The more time we lose, the deeper the recession will be.”
Belgian Prime Minister Sophie Wilmès told reporters after the videoconference that the EU’s credibility was on the line. “We need to show citizens that Europe can provide answers to this crisis,” she said.
Lili Bayer, Hans von der Burchard, Cristina Gallardo, Aitor Hernández-Morales, Barbara Moens, Rym Momtaz, Ivo Oliveira and Eline Schaart contributed reporting.