Leaders of EU countries still disagree strongly over a proposed economic recovery plan tied to the bloc's next long-term budget, European Council President Charles Michel warned top MEPs on Thursday.
A senior Council official said Michel described "entrenched" disagreements, including over the core question about whether the recovery plan uses grants or loans to deliver financial assistance to regions and sectors hit hard by the pandemic. National leaders are also at odds over the size of the recovery fund and the overall budget.
Philippe Lamberts, the co-leader of the Greens group in the European Parliament and who took part in the meeting, said Michel had been "cautious and honest in his assessment of the situation.”
Leaders will hold a videoconference on Friday of next week to try to make progress on the plan. But they have played down any prospects of a deal in that meeting. Michel told the leaders of Parliament's political groups he would use the summit to "mainly try to give EU countries guidelines for work," Lamberts said.
National leaders have posed an array of serious "technical" questions that have yet to be answered by the European Commission, which drafted the recovery plan, Michel told the parliamentary leaders behind closed doors, including questions about the so-called allocation key by which cash would be divided among EU countries.
"I sense a huge political difficulty. There is no real coming together at the moment" — Charles Michel, European Council president
Several leaders have complained that one of the proposed formulas is based on data that is not related to the coronavirus crisis, including unemployment numbers from as early as 2015.
Taken together, Michel said, the technical questions and political disagreements — along with pre-existing divisions over the long-term budget, the Multiannual Financial Framework (MFF) — leave leaders facing a long, difficult path toward a compromise
"Discussions will be very difficult and very complex," Michel told the leaders in Parliament, according to the senior Council official. "I sense a huge political difficulty. There is no real coming together at the moment."
"I am very realistic," Michel added, "and huge divergences still exist."
'Climate of mistrust'
Multiple parliamentary officials confirmed the substance of Michel's remarks, and said that he had offered a sober assessment of all the obstacles to a compromise that must still be surmounted.
"Michel mentioned a climate of mistrust," one of the officials said.
Among the contentious issues in the debate over the MFF is the matter of rebates, which have been used in the past to limit the budget payments of some relatively wealthy "net contributor" countries that pay more into EU coffers than they get back. If those rebates are ended or phased out, those countries would see a steep increase in budget obligations.
Lamberts also said he and his colleagues discussed issues of governance with Michel, including the role of the European Parliament and national parliaments in controlling executive power over the recovery plan. “It is up to parliaments to set the rules,” Lamberts insisted. A budget deal can only take effect with the European Parliament's approval.
Michel's remarks in the meeting with the Parliament's Conference of Presidents highlighted the excruciating difficulty that EU leaders face in trying to fashion a grand bargain over the Commission's plan for a roughly €1.1 trillion MFF and a €750 billion recovery fund, comprising €500 billion in grants and €250 billion in loans.
The recovery plan would be financed through new joint debt. The Commission has proposed delaying the repayment of the debt until the subsequent MFF begins in 2028, and paying it back over a 30-year period.
Germany and France have endorsed the concept of joint debt to finance the recovery plan, which is strongly supported by Italy, Spain and Portugal among others. But the so-called Frugal Four — Austria, Denmark, the Netherlands and Sweden – oppose the idea of borrowing money to use for grants, and put forward an alternative approach using only loans to be repaid by individual countries.
That disagreement has spurred rancorous debate, with the financial questions at times taking a back seat to a deeper philosophical fight over EU solidarity, and has rekindled lingering resentment over the handling of the eurozone debt crisis a decade ago.
Koen Geens, Belgium’s EU minister, said it would be tough to reach any compromise before leaders can see each other face to face.
“Screens do strange things to us and don’t allow for confidential meetings,” he told POLITICO in an interview. “EU leaders normally don’t travel to capitals ahead of these summits to gain flight hours, but to establish human contacts."
In the two weeks since Commission President Ursula von der Leyen put forward her MFF and recovery proposal, Michel has been conferring with heads of state and government, speaking to them individually or in small groups.
Based on those consultations, Michel expects heads of state and government to have a first formal discussion about von der Leyen's plan at next week's virtual summit. But given the still-intense disagreements, Michel does not intend to put forward his own new, baseline MFF proposal — called a "negotiating box" in budget shorthand — until after that meeting, with an eye toward resuming negotiations at an in-person gathering in July, health conditions permitting.
Another Parliament official said that Michel stressed the need to build trust and consensus among the national leaders and that it would be impossible to reach a deal without at least one summit, if not more, in person.
"His plan is schmoozing on June 19, and a special summit at the start of July in person. And then a negotiation box and a second summit in July to try to get an agreement, but all will depend on the atmosphere at the end of the [first July] summit," the official said.
Several leaders in the European Parliament have called for a far bigger MFF than either the Commission or Michel have proposed in the past, and some of Michel's remarks on Thursday were clearly intended to lower expectations that national capitals would be willing to shell out more money than is currently being discussed.
“We can’t talk about anything any more the same way we did before this crisis, and the same goes for the Frugal Four" — Koen Geens, Belgium’s EU minister
Across the EU institutions, there is growing acceptance that the Commission will have to adjust the allocation formula for the recovery funds, but there is little clarity or consensus about which metrics should be used, or how best to gauge the needed assistance. Adding to the challenge is the fact that health and economic conditions across the EU are still in tremendous flux.
Geens said Belgium was among those countries concerned about the allocation methods. “Together with a number of other countries, we’ve asked questions about the distribution criteria," Geens said. “We’re now waiting for the Commission to see whether adjustments can be made and which consequences these adjustments would have.”
However, he said the pandemic clearly raised the stakes of the budget negotiations, and may ultimately make leaders more open to compromise.
“Corona has been a game-changer,” he said. “We can’t talk about anything any more the same way we did before this crisis, and the same goes for the Frugal Four. I also experience this within the Belgian government: There’s more flexibility and it doesn’t always make sense to discuss numbers behind the comma when you’re faced with matters of life and death.”
Barbara Moens and Lili Bayer contributed reporting.