EU leaders deadlock over massive stimulus fund despite marathon talks

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French President Emmanuel Macron, center, leaves the European Council building early in the morning during an EU summit in Brussels, July 20, 2020.


European leaders are meeting Monday for a fourth day in a row to continue tense negotiations over a € 750 billion stimulus fund ($ 858 billion in conversion).

The European Commission, the EU’s executive arm, suggested in May to exploit markets to ease the economic shock coronavirus. However, European capitals have not agreed on how to divide funds between grants and loans, how to link them to democratic values ​​of the EU and how to control how the money is. invested.

“Things can still fall apart,” Dutch Prime Minister Mark Rutte said Monday morning, referring to the tentative progress seen in the negotiations so far. His Austrian counterpart, however, said on Twitter that he was “happy” with the outcome of the Sunday night meeting.

The President of the European Council, Charles Michel, who chairs the negotiations between the 27 heads of state, is due to make a new proposal on the stimulus fund and the new EU budget on Monday afternoon. If the latter is well received by the 27 governments, it will be approved soon after. On the other hand, if the proposal raises further tensions, negotiations will continue, although likely at a later date.

German Chancellor Angela Merkel (3rd R), President of the European Commission Ursula von der Leyen (R), President of the European Council Charles Michel (L) and French President Emmanuel Macron (2nd R) meet as part of the summit of EU leaders in Brussels.

Anadolu Agency | Anadolu Agency | Getty Images

The biggest obstacle turned out to be the distribution of the 750 billion euros in grants and loans. The initial proposal, presented by Germany and France in May, offered 500 billion euros in grants. However, the so-called “Frugal Four” countries (the Netherlands, Austria, Sweden and Denmark) alongside Finland have requested a much lower amount of 350 billion euros.

“400 (billion euros in subsidies) is now the red line for many countries, mainly because otherwise it would weaken the Germany-France axis,” said an official, representing a country in southern Europe and who declined to be named due to the sensitivity of the discussions, CNBC told CNBC on Sunday.

The only new official proposal which was tabled this weekend already provided for a reduction in the level of subsidies to 450 billion euros.

The French president and the German chancellor defended an “ambitious” level of subsidies, declared Monday morning an official of the EU, who did not want to be named because of the sensitivity of the discussions.

The same official added that President Macron had told “frugal” nations that they were jeopardizing the European project. A divided European response to the coronavirus crisis could trigger negative market reactions.

A digital tax unlikely before 2023?

In order to pay off some of their additional debt, European countries have been urged to consider new taxes on digital businesses, as well as plastic waste and carbon.

Ahead of the summit on Friday, European Council President Charles Michel said: “I will propose to introduce a digital tax with a view to introducing it by the end of 2021”.

However, the only official proposal in circulation in Brussels this weekend stated: “The Commission will present in the first half of 2021 proposals on a carbon border adjustment mechanism and on a digital tax with a view to their introduction no later than the 1st January 2023. “

No bridging funding?

The stimulus fund is expected to be implemented from January 2021. As a result, the European Commission was considering ways to develop some kind of interim funding mechanism through the current EU budget to provide additional fiscal stimulus to countries. of the EU before that date.

However, this may no longer be the case. The official proposal presented this weekend read: “There will be no change to the MFF 2014-2020”, referring to the current EU budget, officially known as the multiannual financial framework (MFF).

EU leaders will meet at 4 p.m. Brussels time Monday. Until an agreement is reached, all of these elements remain open for debate.

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