News EU leaders expect budget disputes to simmer all summer Posted June 21, 2020 NAIJASCHOLAR Press play to listen to this article Voiced by Amazon Polly EU leaders are still so far apart on a long-term budget deal that agreeing where they disagree most on Friday will count as a win at their videoconference get-together. Capitals are at least aligned on the necessity for a deal before the end of the summer, but such is the scale of divergence on the substance of the financial plan that even a consensus on precisely when that seasonal milestone falls is potentially something to argue about. In short, expectations for the high stakes “summit” on Friday could not be lower. In a speech to the Bundestag Thursday, German Chancellor Angela Merkel said the virtual gathering would at best provide for an “initial exchange” of positions on a plan that has been drastically scaled up in response to the economic impact of the coronavirus crisis. Council President Charles Michel, who will preside over the negotiations, has made clear that he expects heads of state and government to use the meeting to reiterate longstanding positions. Those include what senior officials say are “fundamental difficulties” among the so-called Frugal Four countries with the signature item in the recovery package: a scheme to raise €750 billion from financial markets for a mix of grants and loans to help regions and sectors hit by the COVID-19 crisis. The frugals — Austria, Denmark, Sweden and the Netherlands — staunchly oppose the “loans for grants” concept, as well as the prospect of taking on a colossal joint debt. But the €500 billion grants program is just one in a long list of hotly disputed points, including such basic matters as the overall size of the budget. The Commission has now proposed €1.1 trillion, which Copenhagen, Stockholm and some other capitals have already rejected as too high, noting that they opposed a €1.09 trillion plan considered in February at a previous attempt by leaders to reach a consensus. The Commission plan, which fused the traditional Multiannual Financial Framework (MFF) to the €750 billion Recovery Instrument, has now added an array of new clashes, not only over the mix of grants and loans, but on the precise formulas for allocating recovery money and potential conditions to be attached to any grants. Critics of the plan are even questioning its legality. Countries hard-hit by the crisis, like Italy and Spain, insist that the grants are an essential show of solidarity by the EU, and senior EU officials say that the majority of the 27 EU countries favor the “global architecture” of the Commission plan. But on the MFF, a majority is not nearly enough. The decision must be unanimous and national legislatures must also give their blessing to the Commission’s new borrowing. The three-week run-up to the summit since the Commission’s unveiling of its plan has been marked by two obvious contradictions: senior officials and diplomats all insist that it is urgent to reach a swift agreement — ideally in July — but countries with the most hardline positions show little willingness to budge. Then there is the potential debate, only half-facetious, over how to define the end of summer — a matter of debate that might yet help Michel claim a victory. “The best would be to have an agreement by the end of the summer,” a senior official closely aware of Michel’s thinking said. “And it’s right that even about the summer, we don’t have in each member state the same interpretation. In Nordic countries, for example, it’s not the same timing and it gives some margin of maneuver.” As usual, Merkel has no patience for such trifles. “The best thing would be if we could reach an agreement before the summer recess,” she said in her Bundestag speech Thursday, clearly referring to the end of July, when most civil servants in Brussels and Berlin ritually leave on holiday. “Then we would be able to negotiate with the European Parliament during our Council presidency and the national parliaments would have time to ratify the own resources decision before the end of the year,” she added, referring to national signoffs for the Commission to borrow on financial markets. But while Merkel’s timeline would enable the EU to have the new budget in place by the time the current MFF expires on December 31, it also looks heroically optimistic. Senior Council officials made clear Wednesday that in Michel’s initial consultations, with individual and small groups of EU leaders, he has heard zero agreement on the proposal to increase own resources — a step that from the perspective of national capitals is crucial to repay money borrowed for the Recovery Instrument. As of now, many leaders have only expressed willingness to consider proposals that have already been on the table, such as revenues stemming from the EU Emissions Trading System and non-recycled plastic packaging waste in each member country. And while some governments have welcomed Commission proposals for a new a carbon border tax, a digital tax and a tax on large corporate entities, others have pointed out that they lack details and could only be seriously negotiated in the coming years. Asked on Thursday what issues about the Recovery Instrument alone remained open for debate, one German official seemed not to know where to stop the list. “The volume is open; the question of discounts is open; the question of award and allocation criteria is open,” the official said. “Furthermore … the terms of the repayments are open. So there are a large number of open questions, but not all of them are equally important politically.” The official also acknowledged there was widespread criticism of the proposed formulas for distributing recovery money: “The Commission has an objective problem, which is criticized by many, but no one has a proper solution.” While no breakthrough is expected at Friday’s summit, senior officials said that Michel was hoping leaders could set parameters that at the very least would lay a path to an eventual agreement. The Commission’s proposal included so many new elements, they said, that leaders must first lay out how they each interpreted those provisions, and potentially challenge each other’s views. That would then allow them to at least agree on where they disagree most, thus giving Michel a steer on how best to frame the next round of negotiations. These officials also said that the Council president sees a real risk that the Frugal Four, who each contribute more to the bloc’s budget than they get back, will persuade other EU countries to join them in opposing core aspects of the proposal. “The first priority,” a senior official said, “is also to avoid that other member states would have a big opposition with the global proposal, this idea that the MFF and recovery fund, it’s a package, this idea that we will use loans for grants.” And while Michel, Merkel and other leaders have pushed for a quick deal, they all seem resigned to the idea that the hard negotiating yards cannot be done over videoconference. That leaves Friday’s summit as a warm-up for the start of actual face to face negotiations in Brussels — possibly in the second week of July. Still, one diplomat said Friday’s initial discussions could prove useful. “The hard negotiation is before us, but the sniffing out is also very important,” the diplomat said, noting that this is a time negotiators use to scope out positions and to identify and secure allies. Across Brussels, as diplomats held forth at the usual avalanche of pre-summit briefings, the desire for a quick deal was a consistent message. “We’re quite under some time pressure,” a second diplomat said. A third diplomat said, “I don’t expect any shift of positions but leaders understand it’s time to advance.” This second diplomat added, “Without a deal in six weeks economically we would not have the resources we need and politically it could become even more complicated.” A fourth diplomat said even modest progress on Friday would be an advance: “If the leaders will leave the room saying that only they have restated their lines, but they have also listened to the others and have the ambition to reach a deal by the end of summer, than I’m happy.” The first diplomat said the aim was a “full political agreement on the main elements” by the end of July. “How exactly we shall get there, that is of course the one-million dollar question.” Actually, the trillion-euro question, but who’s counting? Oh, everyone. Want more analysis from POLITICO? POLITICO Pro is our premium intelligence service for professionals. 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