Tough slog for EU leaders to agree on multi billion euro recovery package

EU leaders have been immersed in intense discussions since Friday morning over the bloc's seven-year budget and Covid-19 recovery package, according to reports.

The talks have so far centred around how to control and monitor the disbursement of the recovery aid, the budget's size and the corrections to countries paying more into the budget.

EU leaders are meeting in their first face-to-face summit since the coronavirus crisis, with low expectations of a deal on a €750bn post-Covid stimulus package.

French President Emmanuel Macron said it was a "moment of truth" for Europe. There are splits between leaders over whether the post-Covid package should be given as grants or loans. Macron and German Chancellor Angela Merkel want grants to mostly finance the fund. Other nations are insisting on loans.

Arriving for the talks in Brussels, Merkel said "the differences are very very big and I cannot say if we will find a solution this time". It would be desirable, she said, but people had to remain realistic.

On 10 July, European Council President Charles Michel presented his proposal for the multiannual financial framework (MFF) and the recovery package. President Michel has proposed €1 074 billion to fulfil the long-term objectives of the EU, and to preserve the full capacity of the recovery plan. This proposal is largely based on the February proposal, which reflected two years of discussions between member states.

“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,” Michel said.

The Commission would be empowered to borrow up to €750 billion through an own-resource decision. These funds may be used for back-to-back loans and for expenditure channelled through the MFF programmes. Repayments would start in 2026.

President Michel proposed to preserve the balance between loans, guarantees and grants to avoid over-burdening member states with high levels of debt. "This is also key for the future of the Single Market and to prevent more fragmentation and disparities," he said.

This proposal ensures the money goes to the countries and sectors most affected by the crisis: 70% of the Recovery and Resilience Facility would be committed in 2021 and 2022, according to the Commission’s allocation criteria. 30% would be committed in 2023, taking into account the drop in GDP in 2020 and 2021.

Based on the proposal, member states will prepare national recovery and resilience plans for 2021-2023 in line with the European Semester, notably country-specific recommendations. The plans will be reviewed in 2022. The assessment of these plans will be approved by the Council by a qualified majority vote on a proposal by the Commission.

Secondly, 30% of funding will target climate-related projects. Expenses under the proposals will comply with the EU’s objective of climate neutrality by 2050, the EU’s 2030 climate targets and the Paris Agreement.

The third condition proposed by Michel is linked to the rule of law and the European values. "We are taking a key step to anchor the rule of law and values in our European project and this is why I propose a strong link between funding and respect for governance and rule of law," Michel said.