Sunday. 05.02.2023

EU Council's tweaked Covid-19 recovery plan meets criticism

The balance between grants and loans has been controversial, with the so-called Frugal Four - Denmark, Sweden, Austria and the Netherlands - pushing for money to be paid out in loans instead of grants.
10 July 2020, Belgium, Brussels: President of the European Council Charles Michel speaks during a press conference on the EU Coronavirus (Covid-19) recovery package. Photo: Dario Pignatelli/European Council /dpa
President of the EU Council, Charles Michel. Photo: Dario Pignatelli/European Council/dpa.

European Council President Charles Michel tweaked a European Commission proposal for a Covid-19 EU recovery package on Friday, attempting to bring about unity among EU countries, which continue to disagree.

Michel proposed a slightly-reduced seven-year budget for 2021-2027 of 1.074 trillion euros (1.2 trillion dollars) instead of about 1.1 trillion euros.

"I'm trying to propose a bridge between the different opinions," he said during the presentation of his proposal. "Our goal is not to burn money; our goal is to invest and reform."

Some European countries had criticized the size of the budget.

The coronavirus recovery package, however, is still the same size as when it was originally proposed by the European Commission: a total of 750 billion euros, consisting of 500 billion euros in grants and 250 billion euros in loans.

The balance between grants and loans has been controversial, with the so-called Frugal Four - Denmark, Sweden, Austria and the Netherlands - pushing for money to be paid out in loans instead of grants.

Responding to concerns about debt in the European Union, Michel's proposal foresees the repayment of debt from 2026 onward, two years earlier than had been previously proposed.

The criteria for paying out funds was also adjusted. While the commission had suggested the use of economic data from 2015-2019, Michel suggested paying only 70 per cent of the recovery and resilience funds according to those criteria. The other 30 per cent would be paid out in 2023 based on the economic impact of the crisis.

The proposal comes one week before the heads of government are to meet in Brussels to thrash out an agreement on the proposed budget.

Agreement in July

Some capitals have expressed hope of reaching an agreement in July, while others have warned that there are still huge differences of opinion.

The president's proposal also includes a conditionality element in the budget, by which money can be withheld if an EU country is seen as not upholding the rule of law. A decision to withhold money would have to be approved by a majority of EU members, making it easier for countries to block such a step.

Also, 30 per cent of the budget overall will have to be spent on climate targets, according to the proposal. This is in line with what the European Parliament had asked for, and an increase on the commission's 25-per-cent suggestion.

The proposal also includes a 5-billion-euro "Brexit reserve," which is to be paid out "to counter the unforeseen consequences in the most affected member states."

Olaf Scholz, Germany's finance minister, welcomed Michel's proposal.

He said that during discussions with his EU counterparts he had felt a willingness to compromise amongst all states.

"This makes me confident that a consensus is possible," he said.

Finland remains critical

But some governments remained critical on Friday. Finnish Prime Minister Sanna Marin said more work was necessary to reach an agreement. "Some right steps regarding the MFF but much work needs to be done on the recovery package," she wrote on Twitter. "We need a lower overall level and better balance of grants and loans."

In a similar vein, Austria's minister for the EU, Karoline Edtstadler, said "intense negotiations" were needed about the balance of loans and grants and the overall size of the budget.

The proposal also met criticism from within the EU. While EU Budget Commissioner Johannes Hahn said that the proposal was "an acceptable and realistic basis for the negotiations," he criticized potential cuts to money spent on Erasmus, research and migration.

Meanwhile, EU economy and finance ministers met to discuss separate coronavirus support measures already under way, including credit lines from the European Stability Mechanism, European Investment Bank, and the support scheme for short-time work called Sure.

"The total loans requested look likely to come close to the financial envelope for this instrument," Commission Vice President Valdis Dombrovskis said of Sure, which is worth up to 100 billion euros (113 billion dollars).

He expressed hope that first loans, which aim to keep workers in their jobs, would start reaching EU countries after the summer. He did not specify which countries have said they would like to take part in the scheme.

EU Council's tweaked Covid-19 recovery plan meets criticism