EU towards post-Covid recovery; 

nearly 50% of funds to be paid back in low interest loans over 30 years

Brussels, 21 July 2020 - We have to admit that the 'stingy four' prevailed, but that's European Union: a supranational democracy where conflict turns into agreement. 

Austria, The Netherlands, Denmark, Sweden dubbed the 'frugal four', then escalated to 'stingy four, did not want the post-Covid Recovery fund of 750bln euros to be made of 500bln grants and the rest in loans. They wanted the most of money to be given back through loans.  

The Nordics' position, also backed by Finland, turned the Special Council in Brussels into a 92 hours marathon where heads of the 27 states held bilateral and multilateral meetings in the heart of the night sipping coffees to stay awake and keep the negotiations going.

Council's  president Charles Michel set a proposal of compromise on Monday to overcome the stark opposition to 500bln  non refundable grants advantaging the pandemic most hit countries: Italy and Spain: the step towards the compromise reduced grants to 390bln while the remaining 360 to be repaid through low interest loans.

The final agreement edging the gap between grants and loans (equate to 17% of EU GDP), remains of 750bln of which 360bln loans will be repaid over 30 years starting from 2027.

Spain will get 140bln euros of which 72.2 in grants. "There is no doubt that today, one of the most brilliant pages in EU history has been written", Spanish PM Pedro Sanchez said to the press soon after the agreement hailed as 'historic' both by EU institutions and international media.

While from Madrid Pablo Iglesias, Deputy Prime Minister and as Minister of Social Rights, sets the immediate priorities to be funded: economic recovery, transformation of the production model towards green transition, digitalisation, sustainable mobility development of a healthy 'economy of the cure'.  "This is a good agreement for both the EU and Spain said Iglesias - is a breath of oxygen for the European project, but there's till long way to go to advance in a European Union that guarantees an institutional and governance framework". 

Though pandemic hard hit Italy was expected to receive €172bln the most part in grants, the final figure cut grants to 82bln and grew loans to 127, but as compensation brought the total to 209bln euros. PM Giuseppe Conte rejoiced on Twitter: "Historic day for Europe and Italy". 

The mask-to-mask duel to the sword, by the way, went beyond the money to hit the governance: National governments will also have a say in deciding on the disbursement of the funds, according to the completion of milestones to implement the national recovery plans. But the main recipients of the fund do not agree that national interests might have a say on others' access to the funds. Italy disagrees that "one single country might have the monopoly of a system of control and verification, this is EU institutions's task " said Conte.

THE AGREEMENT: 

The amounts under NGEU for individual programmes shall be as follows:

• Recovery and Resilience Facility (RRF) EUR 672.5 billion of which loans EUR 360 billion

grants EUR 312.5 billion

• ReactEU: EUR 47.5 billion

• Horizon Europe: EUR 5 billion

• InvestEU: EUR 5.6 billion

• Rural Development: EUR 7.5 billion

• Just Transition Fund (JTF): EUR 10 billion

• RescEU: EUR 1.9 billion

• Total: EUR 750 billion

"We negotiated about money. But, of course, it is about a lot more than money. - said Charles Michel after the agreement was reached - It is about workers and families, their jobs, their health and their well-being. I believe this agreement will be seen as a pivotal moment in Europe's journey, but it will also launch us into the future. In fact, it is the first time, the first time in European history that our budget will be clearly linked to our climate objectives. The first time, the first time that the respect for rule of law is a decisive criteria for budget spending. And the first time, the first time that you are jointly re-enforcing our economies against a crisis".

Read the Conclusions of the EU Council

Justine de Braeme

@TalkeuropeTweet

Brussels, 16 July 2020 - We don't know yet how tough the first post-Covid summit in Brussels of the 27 is going to be.

 

EU Council president Charles Michel is trying to turn the stumbling blocks into building blocks: "The goals of our recovery can be summarised in 3 words: first convergence, second resilience and transformation. Concretely, this means: repairing the damage caused by Covid-19, reforming our economies, remodelling our societies".

But stark divergences split the front; an hostile position comes from Hungary where far right premier Orban adopted a resolution to bargain support to EU's long-term budget and recovery fund in exchange of a backtrack on Article 7 (voted by MEPs in Sept 2018) aimed at imposing sanctions on Hungary over human rights violations; so Budapest's support will be conditional.

On the North Western front The Netherlands is the stumbling block to the new taxes, like single-plastic tax and 10bn euros annual levy that EU Commissioner for Budget, Johannes Hahn, said would affect 70,000 companies in Europe with global turnover exceeding €750mln, (FT reports).

In view of the upcoming Special Council 17 and 18 July, President Charles Michel sets key proposals for the repayment of loans of 750 billion euro COVID Recovery fund.


The introduction of new taxes (plastic waste, carbon adjustment measure and digital levy) would allow Commission new autonomy for budget setting. 

Along with The Netherlands, come Austria, Denmark and Sweden who want money from €750bln recovery to be given back by countries trough loans and not given out in grants. 

The southern main beneficiaries of the recovery, in fact, are going to be Italy and Spain, the hardest hit from the pandemic. 

With a death toll of 34,997 so far, Italy is set to lose 14% of GDP and Spain 11,1%, France will do even worse: -11,4%, (figures Ocse) that's why meetings in the central European area are frantic: Merkel plays as pillar for Macron and Conte though she did not give any certainty the Covid rescue plan of €500 bln grants and €250 bln in loans will get hammered out over this weekend.

From his side Italian Prime Minister Conte is trying to gain trust of the wealthy Northern 'frugal four' opposing the pandemic grants. From the Baroque Meseberg Castle he made wise use of economic diplomacy calling EU heads of state due to meet at the EU Council, to make a decision for unity "we should never forget we do not just relate to a logic of single market but to a global scenario, thus it's important EU is up to the challenge because Europe must make its voice heard. Common values and interests are at stake" said Conte hinting at the risk of a single market fragmentation.

Under the biggest EU stimulus package in history, Italy is expected to receive €172 billion.

Also time is of essence, and not for Italy only. If the 27 do not find the qualified majority this weekend, the crisis pattern will go on to hit harder and harder. Just a feeler:

Unemployment.

Spain reached in May 2020 nearly four million (3.857.800)

In Italy the real figures will not show until mid August, when the government furlough scheme will end and businesses will be able to cut jobs. Projections show if the current 4.8 million workers now on government support will be laid off the would bring the total figure to 7 million (37.6% unemployment) when added on top of the previous 2.1 million.

@Emymuzzi

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