EU summit: €390bn proposed to help states recover from Covid-19.

EU leaders will try to strike a deal on Europe’s financial response to the coronavirus pandemic on Monday following a fraught weekend of talks in which they argued over the size of a recovery fund for the bloc.

Overnight negotiations broke up at 6am on Monday morning after Charles Michel, president of the European Council, floated a new figure of €390 billion in grants for stricken countries. This was lower than proposals going into the summit but higher than earlier demands from an alliance of so-called “frugal” nations including the Netherlands.

Diplomats said the new grants figure represented a breakthrough in marathon four-day talks that have been beset by divisions. Leaving the summit, Austria’s chancellor Sebastian Kurz, one of the advocates for a smaller fund, said he was “very happy” with the result after a day of “tough negotiations”.

The talks will resume at 4pm Brussels time (3pm in Ireland). If a deal is struck on the size of the recovery fund, the focus will shift to a governance mechanism for its disbursement — another divisive topic.

Governments will also need to resolve a disagreement on whether to tie distribution of aid to respect for the rule of law after resistance from Poland and Hungary.

Seven-year budget

Leaders have been negotiating since Friday morning as they seek a co-ordinated EU response to the worst economic crisis since the bloc’s inception. Not only are they attempting to unlock a deal authorising the European Commission to borrow unprecedented sums to seed the recovery fund but they are also attempting to settle the EU’s upcoming €1tn seven-year budget.

The main sticking point over the weekend has been the level of non-repayable grants that the recovery fund will be permitted to give hard-pressed member states.

Earlier on Sunday, the leaders of Austria, Denmark, the Netherlands and Sweden said they wanted to scale back proposed grants to €350bn, coupled with another €350bn of loans, in a total recovery package worth €700bn.

The offer, which was conditional on rebates to their EU budget contributions, was backed by Finland but received a frosty response from nations that have been hardest hit by the pandemic. During the summit dinner, French president Emmanuel Macron railed against the frugal countries and compared their strategy to Britain’s ill-fated demands for a smaller EU budget under former prime minister David Cameron.

Italian prime minister Giuseppe Conte said failure to strike a deal would lead to the “destruction of Europe’s single market”, according to diplomats.

The offer from frugal leaders represented a change from their pre-summit position that no grants should be distributed under the recovery fund. But it was still a substantial cut from draft proposals going into the summit. France, Germany, Spain and Italy had pushed to keep the grants ringfenced at no less than €400bn — a figure that was itself shy of the €500bn originally advocated by Berlin and Paris in May.

Mr Michel is expected to table a fresh negotiating blueprint on Monday, including the new €390bn figure alongside proposals for budget rebates for the frugal states and Germany. Leaving the summit on Monday morning, Dutch prime minister Mark Rutte said the talks were “back on track”.

Still working

“We are still working. We have made progress but are not there yet,” Mr Rutte told journalists on his way back to his hotel.

Leaders will also need to agree on how to police the recovery fund after Mr Rutte insisted on the right to veto grant payments if countries failed to stick to their reform promises. The issue sparked fierce resistance from Italy over the weekend. Diplomats said the dispute over governance would likely be solved once the level of grants was agreed.

Hungarian premier Viktor Orban over the weekend also presented another roadblock by threatening to veto a compromise that tied distribution of aid to respect for the rule of law. Budapest demanded that any potential sanctions to suspend cash payments would need the unanimous support of all governments.

Speaking to journalists on Sunday, Mr Orban accused Mr Rutte of hating him and Hungary.

Mr Orban’s stance was backed by Poland, which joined Hungary in rejecting a draft plan that would require a qualified majority of member states to back potential cash sanctions.

One diplomat said Hungary and Poland’s position was designed to extract more money as part of a final compromise.

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