E.U. leaders agree to $859 billion coronavirus plan to steer bloc out of what could be worst economic straits since World War II

July 22, 2020

Article originally published on the Washington Post: here

Photo: Prime Minister of the Netherlands Mark Rutte, left, talks with German Chancellor Angela Merkel, European Commission President Ursula von der Leyen and French President Emmanuel Macron before the start of meetings on July 18. (Francisco Seco/Pool/AFP/Getty Images)​

By Michael Birnbaum, Quentin Ariès and Loveday Morris

July 21, 2020 at 12:27 a.m. CDT

BRUSSELS — European leaders on Tuesday morning agreed to a vast spending plan to rescue the economies of coronavirus-hit countries, overcoming deep-seated divisions on the extent to which rich European Union nations should commit to helping poorer ones.

The deal on a $2.1 trillion E.U. budget and rescue package came after a marathon four days of grinding discussions among members of the 27-nation union.

The negotiations had been bogged down by the objections of a handful of rich, northern countries on the scope of the fund and the strings attached to it.

But faced with the prospect of the worst economic blow since World War II, they hammered out a compromise. E.U. officials described it as a milestone that will shape how member states live with one another for years to come.

“We did it,” said European Council President Charles Michel after talks that lasted through the night. “This is a good deal, this is a strong deal, and more importantly this is the right deal for Europe right now.”

The final agreement earmarks $859 billion in loans and grants to largely be spent over the next four years. The leaders also hashed out the European Union’s $1.2 trillion budget, a spending plan that covers everything from agricultural subsidies to road repairs and is negotiated every seven years.

But the deal did not come without compromise. “These were of course difficult negotiations, in very difficult times for all Europeans,” said Michel.

Stretching for more than 90 hours, discussions had been tense.

Over alfresco breakfasts, midday french fry breaks and late-night haggling sessions, leaders fought with one another using increasingly bitter rhetoric.

The main disagreement between the leaders of a handful of self-dubbed “frugal” countries — the Netherlands, Sweden, Austria, Denmark and Finland — and their peers was about how much money to ship to hard-hit countries such as Italy and Spain and how much oversight donor countries ought to have over how the funds are spent.

In crises, the E.U. has typically offered loans, not grants, and demanded economic reforms in return. The “frugals” wanted to keep it that way. The others didn’t, offering a vision that would be a small step closer to a federal European Union that more closely resembles the United States, where richer states subsidize poorer ones.

To appease them, the portion of grants in the deal was trimmed to $358 billion, and the objectors were granted billions more in rebates from their contribution to the shared E.U. budget.

In a news conference following the deal German Chancellor Angela Merkel said there were “no regrets” on the concessions given. “We think we’ve acted responsibility in agreeing to these compromises.”

But it was a “bittersweet victory,” in the words of one European official who spoke on the condition of anonymity before the deal had been announced. To reach a compromise cuts were made to projects covering health and refugees.

European Commission President Ursula von der Leyen described the reductions as “regrettable” but was upbeat about the deal.

“Europe now has a big chance to come out stronger from the crisis,” she said. “Today we have taken a historic step we can all be proud of.”

In a win for Hungary and Poland, stipulations that tied access to funds to upholding the rule of law were rolled back in the final draft. Both countries have been censured by Brussels as their leaders have moved against their political opponents and stripped the independence of the judiciary.

French President Emmanuel Macron and Merkel teamed up in May to propose $570 billion in grants to respond to the pandemic, with the German leader abandoning her long-held caution about handing her taxpayers’ money to poorer nations without asking for it to be repaid. Merkel called it a “one-off,” but some analysts dubbed it Europe’s “Hamiltonian moment” — a burst of centralization that would forever hand more power to Brussels.

“It’s an upgrading of supranational institutions’ role and power. It’s really upgrading them in a very significant way,” said Rosa Balfour, the director of the Brussels office of the Carnegie Endowment for International Peace, a think tank.

The need to agree on an ambitious plan to react to the crisis drew the leaders together in person Friday, despite the risks, as they attempted the biggest and highest-level gathering of world leaders since the pandemic largely ground the world to a halt earlier this year. They had met by videoconference from their capitals, but diplomats said there is little substitute for face-to-face discussions to resolve sharp disagreements.

Leaders began their meetings Friday with careful adherence to social distancing rules: Many of them were masked, and they met in a vast room built to seat 330. Merkel was even photographed admonishing Bulgaria’s leader for allowing his mask to slip off his nose. But the masks came off as the discussions devolved, and leaders, ambassadors and advisers huddled close together to examine budget figures and new formulas. Some smaller negotiation sessions did take place on outdoor terraces and balconies, where the viral risk is presumably lower.

“Are the 27 leaders who are responsible to the peoples of Europe capable of building European unity, of building trust? Or will we present the face of a weak Europe, undermined by mistrust, and divided?” Michel asked leaders late Sunday during another round of negotiations that broke just before 6 a.m. Monday. He noted that worldwide deaths from the novel coronavirus had been tallied to have surpassed 600,000 on Sunday as they negotiated, according to a copy of his prepared remarks.

As she entered discussions Monday, Merkel said it was clear they would be tough. “Yet exceptional situations also require extraordinary efforts,” she said. “We have lived up to this so far and I hope that the remaining path, which will not be easy, can still be covered.”

As tensions rose the previous evening, Macron thumped on the table and lashed out at leaders including Austrian Chancellor Sebastian Kurz, whom he derided for leaving the meeting room to take phone calls even though leaders were speaking.

“If we don’t have the required spirit of compromise and ambition today, we risk coming back in tougher times,” Macron said before the deal was reached Monday. “It will cost us more.”

For Merkel, the plans will set her legacy. She is set to retire next year after 16 years in office and years as undisputedly the most powerful leader in Europe. Her careful style has made her a dealmaker who will not be easily replaced — leading some analysts to suggest she is trying to hand more power to Brussels to keep the balance of power after she is gone.

“It’s very unlikely there will be a dealmaker, someone who can pull all the threads together” after Merkel, Balfour said.

At the summit, the biggest disagreements were about the crisis effort, and leaders haggled over how many strings would be attached to the cash. Italy, Spain and Poland would be the biggest beneficiaries of the plan, according to initial formulas that tied funds to their pre-pandemic unemployment rate and economies.

Dutch leaders and their allies said countries such as Italy and Spain are to blame for pre-pandemic economic difficulties that left them struggling to pay their way out of the current crisis. They said they do not want to send money to those countries if they have no guarantees of economic reform in return.

The Netherlands wants “truly enforcing reforms in exchange for loans,” Dutch Prime Minister Mark Rutte said Monday. “And if loans still have to become subsidies, then these reforms must really be enforceable” by allowing E.U. leaders to have oversight, he said.

Rutte — who faces elections next year, and whose tough stance is good politics at home — has leaned into his bad-cop approach. Opponents note that the Netherlands has benefited enormously from being a member of the barrier-free market of the E.U., including by offering low tax rates to companies that have been lured away from the countries he now derides.

“There’s so much that Europe can do, and if it benefits from giving the appearance of being strong, united and committed, then the world is watching. Its soft power will benefit,” Balfour said.