European leaders push for €750-billion stimulus package

Bloomberg | Updated on July 20, 2020

Dutch support for package gives boost to the new plan to help EU nations hit by Covid pandemic

European Union leaders meeting in Brussels for a second day were inching closer to a deal for a €750- billion ($860 billion) stimulus package after the Dutch government indicated support for the direction of the negotiations.

A new proposal unveiled on Saturday, which would keep the overall size of the fund the same but reduce the amount distributed as grants by €50 billion, was a major step in the right direction, according to a Dutch official familiar with the talks, who asked not to be identified because the process is private. The new plan would see €450 billion disbursed as grants and an EU official said it was garnering considerable support around the room.

“It is going pretty well, things are moving in the right direction,” Austrian Chancellor Sebastian Kurz told journalists in Brussels on Saturday afternoon. “Of course it’s a close fight, an intense negotiation, as was to be expected.”

Challenges for EU

The talks were advancing after the first day of the summit ended in acrimony, leaving the bloc’s plan to help its economies heal from the coronavirus hanging in the balance. At stake is not just the amount of funds that will be given to countries, but the ability of the EU as a whole to offer meaningful solidarity to its 27 members and push through unprecedented financial integration. Council President Charles Michel, who chairs the meetings, told the leaders they won’t be allowed to leave the building without a deal, according to an EU official.

Most leaders are seeking a decisive response from the bloc with more than 100,000 Europeans dead from Covid-19 and their economies battered by the lockdown. Yet sitting together in the Belgian capital for the first time in five months, they spent much of the Friday rehearsing their starting positions and bickering over a Dutch request for a mechanism that would allow member states to hold up the disbursal of funds.

Dutch conditions

In a nod to Dutch demands, the new plan would include a super emergency brake that would allow a single member state to hold up a disbursement if it had questions about whether the funds would be used appropriately. Governments would have three days from when the commission approves a payment to raise their objections and then the matter would have to be addressed by either EU leaders or finance ministers.

Dutch Prime Minister Mark Rutte has insisted he won’t allow handouts to the southern members hardest hit by the virus without cast-iron guarantees the money will go, as intended, to projects that will upgrade their economies. Other countries, and the commission, which traditionally polices national spending plans, are worried that too many constraints would make the fund unworkable and store up political problems for the future.

The Dutch demand does not have the same priority for all other budget hawks, however.

Kurz said it was very ambitious and that he himself was more flexible on this. Finland is opposed to effectively giving individual countries such veto power. Meanwhile, Austria, Finland and others still want to further reduce the volume of grants to significantly less than €400 billion, according to diplomats familiar with the talks. Kurz also said Austria wants a bigger rebate on its contributions to the EU budget.

Complex negotiations

“We are having a hard confrontation with the Netherlands and also with so-called frugal countries that don’t agree on the need for such a consistent response, especially as far as grants are concerned,” Italian Prime Minster Giuseppe Conte said in a Facebook video. “We are in a phase of deadlock, a very complex phase, more complex than we expected.”

The overall package under discussion by the EU leaders is worth about €1.8 trillion. Just over €1 trillion will be distributed in grants from the bloc’s regular budget with another €750 billion from the emergency stimulus package. Germany contributes the lion’s share to the bloc’s budget.

Almost a third of this total will have to be committed to projects transforming the EU into a low-carbon economy. Expenditure that is not consistent with the Paris Agreement on climate change won’t be approved, thus making the potential deal the biggest green stimulus the world has ever seen.

The plan would also introduce new ways for the EU to generate revenue, including a tax on non-recycled plastic waste that would be implemented by January 2021. The EU would also put forward proposals in the next year on a carbon border adjustment mechanism and a digital tax, which would take effect by January 1, 2023, at the latest.

Published on July 20, 2020

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