Solidarity or Frugality? EU Leaders Discuss Coronavirus Plan

BRUSSELS (AP) -- As they brace for the worst economic downturn since the Great Depression, leaders of the European Union's 27 member states started discussing the bloc's future long-term budget and a multibillion-euro post-coronavirus recovery plan during a video summit Friday that is aimed at paving the way for a compromise later this summer.

Friday's Council meeting is just the first step in intense discussions that could culminate with a deal in July if member states overcome their differences. According to several EU officials and diplomats who spoke in the buildup to the meeting, the goal of this virtual reunion is very limited and a common declaration of good will would already be seen as success.

It’s the first time leaders will examine together the latest version of the European Commission’s plans for a â?¬1.1 trillion seven-year budget and a â?¬750 billion ($825 billion) recovery fund. Devised to help member states' economies cushion the impact of the coronavirus, the package is far from being unanimously welcomed.

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Speaking ahead of the meeting, EU Commission president Ursula von der Leyen urged leaders to endorse it without delay.

“This is a huge stimulus of 1,850 billion euros," she said Friday. “This is a chance Europe can’t afford to miss. We must all pull together, we cannot afford any delay."

The aid plan is a blend of debt mutualization, grants and loans. It has failed to gain the approval of a group of countries known as the Frugal Four — the Netherlands, Denmark, Austria and Sweden. They oppose issuing too much common debt to support the hardest-hit countries and argue that the money should mainly be handed out in loans instead of grants.

Another divisive topic relates to how the money will be allocated. The Commission proposed to work it out based on criteria including the size of population, gross domestic product per capita and unemployment. One top European diplomat said on the eve of the meeting that the range is too limited and should be adapted to take into account the real damage of the coronavirus.

Under the commission's plans, the recovery fund should be incorporated in the 2021-2027 EU budget. Two-thirds of the fund — a half-trillion euros — would take the form of grants. The plan is backed by France and Germany, the bloc’s two most powerful countries. With their allies, they need to convince the countries opposed to debt mutualization or increases in the EU budget that grants will benefit the whole bloc.

“This is an historic occasion,” said one diplomat, speaking on condition of anonymity. “With an agreement, we would achieve things in common that would be quite considerable. This business of borrowing over decades is a strong responsibility that we are taking on together.”

To fund the plan, the Commission proposed borrowing money on financial markets. The European Commission has a triple A credit rating, which would give it favorable loan terms. Repayments would not begin before 2028, with the full amount due after 30 years.

To facilitate the reimbursement, several member states are expected to push for the rapid development of new EU funding sources that could take the form of taxes on carbon or single-use plastic. Such revenues would make the EU budget less dependent on national contributions from member states, which are reluctant to pay more.

The last time they discussed their budget for the 2021-2027 period, the 27 member states could not find a compromise after 28 hours of discussions. Taking into account the coronavirus crisis, von der Leyen is now proposing a revised long-term budget that would represent around 1.1% of European GDP after the U.K.’s departure, coupled with the temporary reinforcement of the 750 billion euros set aside to combat the virus.

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