EU recovery fund plan hangs in balance on day three of deadlocked summit

BRUSSELS (Reuters) – A European Union plan to breathe life into economies throttled by the coronavirus pandemic hung in the balance on Sunday as leaders quarrelled over how to carve up a vast recovery fund and what strings to attach for countries that benefit from it.

After three days of meetings in Brussels, the 27 EU states were still seeking a compromise on the fund, though their summit was still shy of the bloc’s record length set in the French city of Nice 20 years ago.

As the leaders haggled into the evening over a plan designed to help haul Europe out of its deepest recession since World War Two, diplomats said it was not clear if they would abandon the summit and try again next month, or plough on through the night.

European Central Bank President Christine Lagarde told Reuters it would be better for the EU leaders to agree an “ambitious” aid package than to have a quick deal at any cost.

“Ideally, the leaders’ agreement should be ambitious in terms of size and composition of the package … even if it takes a bit more time,” she said.

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On the table is a 1.8-trillion-euro ($2.06-trillion) package for the bloc’s next long-term budget and recovery fund. The 750 billion euros proposed for the recovery fund would be raised on capital markets by the EU’s executive European Commission and funnelled mostly to hard-hit Mediterranean rim countries.

A group of “frugal” wealthy northern countries have pushed for a smaller recovery fund and they have been trying to limit the split between grants and repayable loans, in tense talks that have underscored the gulf between the EU’s north and south.

By Sunday afternoon, in talks where participants wore protective face masks, diplomats said the leaders were looking at about 350 billion euros in grants – down from a proposed 500 billion euros – as a possible compromise with the thrifty north, though Italy was opposing conditions that the Netherlands wants attached when the money is disbursed.

“The volume of grants is make or break,” one diplomat said.


There were also differences over a proposed new rule-of-law mechanism that could freeze funding to countries flouting democratic principles, the envoys said.

Hungary, backed by its eurosceptic ally Poland, has threatened to veto the package if its disbursement is made dependent on meeting conditions on upholding democracy that are sought by more liberal states in the bloc’s north and west.

Luxembourg Prime Minister Xavier Bettel said such conditions were needed to safeguard democratic values that were the backbone of the EU.

“Because Europe is not a grocery where you can choose what you want. Europe is, above all, the values that we protect,” he said.

For some, the summit is a critical moment for nearly 70 years of European integration, and failure to agree during such a severe health and economic crisis could fuel doubts about the viability of the bloc and unnerve financial markets.

Greek Prime Minister Kyriakos Mitsotakis, whose country was recovering from a 10-year debt crisis when the pandemic hit, called for unity, saying the EU could not afford to look “divided or weak”.

Italian Prime Minister Giuseppe Conte has accused the Netherlands and its allies, Austria, Sweden, Denmark and Finland, of “blackmail”.

Dutch Prime Minister Mark Rutte’s position reflects political realities at home, where voters resent that the Netherlands is, proportionately, among the largest net contributors to the EU budget.

Rutte lacks a parliamentary majority and his conservative VVD party faces a strong challenge from far-right eurosceptic parties in elections next March.

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