European Council President Charles Michel on Friday put forward a slightly smaller budget package aimed at bridging divisions among EU leaders, but retained a plan for €500 billion in economic recovery grants at the heart of their disagreements.
Michel’s decision not to touch the grants component of the coronavirus recovery plan, which calls for EU countries to take on an unprecedented amount of joint debt, sets the stage for tough negotiations when leaders convene for a summit in Brussels next Friday — their first in-person gathering since the pandemic forced emergency lockdown measures.
Michel’s revised proposal includes a core seven-year budget, the Multiannual Financial Framework (MFF), of €1.074 trillion — €26 billion less than the plan outlined by the European Commission in May.
At a news conference, Michel said his consultations with leaders in recent weeks had revealed “strong opposition to some elements” of the Commission plan, and that his revisions were designed to bridge the gaps.
“The goals of our recovery strategy can be summarized in three words,” he said. “First, convergence. Second, resilience, and transformation. Concretely, this means repairing the damage caused by COVID-19, reforming our economies and remodeling our societies.”
The reduced size is a nod to complaints by the so-called frugal four — Austria, Denmark, the Netherlands and Sweden — that the Commission’s spending blueprint was too big. But it also requires big cuts to some programs, like research, international aid, and migration and border management, that instantly infuriated other stakeholders.
Notably, Michel did not cut agriculture programs or so-called cohesion funds that foster regional economic development, which are strongly defended by many EU member governments. France is among the staunchest champions of EU agriculture spending while cohesion funds have been particularly valuable to governments in Southern and Eastern Europe.
Michel’s plan also includes lump-sum rebates for the frugal four as well as Germany — effectively, discounts on their overall payments into the bloc’s budget.
Some of the toughest talks will center on the coronavirus recovery initiative, branded Next Generation EU, which Michel maintained at €750 billion, with €500 billion pegged to the controversial grants program and €250 billion for loans. Opponents of the grants say they do not like the idea of taking on debt to finance national expenditures of other EU countries, but they have potential openness depending on the conditions attached to the money.
The Netherlands has urged that EU countries unanimously approve disbursement of recovery money, based on benchmarks tied to compliance with EU recommendations for structural economic reforms, long ignored in some countries. That would give national capitals strong oversight over how the recovery funds are used, but Michel did not adopt the Dutch approach. Instead, he called for EU countries to approve national recovery plans by qualified majority vote.
Michel’s proposal also aims to start repaying the joint debt in 2026, two years earlier than the Commission proposed. It also includes plans for new budget revenue taxing countries based on non-recycled plastic waste — and for leaders to begin a years-long process of negotiating other EU “own resources” including a carbon border tax and a digital levy.
With the exception of plastics, the proposals are highly controversial as capitals have long resisted giving Brussels access to more direct sources of revenue. At a news conference, Michel said that the quicker repayment schedule would add pressure in support of creating the new revenue streams. But it also adds another major point of contention.
Such “own resources” must be ratified by all the EU’s member countries — a process that makes it harder to reach consensus. While leaders are stressing the urgency of reaching a quick deal, some officials say a second summit might be needed in late July to bridge disagreements.
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