European Union leaders are aiming to agree on a coronavirus-crisis recovery plan worth hundreds of billions of euros by the end of July, they said Friday after a videoconference, but strong differences remain over how to craft the package.
The bloc’s leaders had their first serious discussion of the economic recovery plan and the multiyear budget proposed by the European Commission last month. The plan would see the Commission, the EU’s executive body, take the unprecedented step of borrowing hundreds of billions of euros from the markets to hand out to the worst-affected member states.
The €750 billion ($840.3 billion) recovery plan and €1.1 trillion proposed budget package would kick in from next year, but would allow hard-hit countries in the EU’s south to step up spending now, knowing they won’t be saddled with huge new debts.
European Council President Charles Michel, who presided over the talks, said he would call for leaders to meet in person in mid-July to seal an agreement. He said that he would make some fresh proposals for leaders before the summit but that “on some topics it remains very complex and very difficult” to find consensus.
Some diplomats have said EU leaders will need two summits next month to forge an agreement—if things go well.
Member states are at odds on many points. Those include the final size of the plan, how much of the money should be in grants as against loans, the criteria for states to receive money and the conditionality of the payments.
There are also differences over when the recovery-plan funds will be available, how quickly they should be paid back and whether EU-wide taxes should be created to cover the costs.
Denmark, the Netherlands, Austria and Sweden have so far opposed handing out any of the proposed recovery plan in grants, although there have been signs of compromise from some of these fiscally-conservative countries in recent days.
Germany and France last month lined up a joint proposal that was similar to what the Commission later set out, raising expectations that the bloc could strike an agreement. The EU’s two powerhouses proposed a €500 billion recovery plan made up entirely of grants, in a major shift by Berlin to accept large-scale issuance of commonly held EU debt.
However, with the bloc wrestling over economic differences between north and south and migration and rule-of-law standards between east and west, even the emerging consensus among Berlin, Brussels and Paris is insufficient to guarantee a swift agreement.
During the meeting, European Central Bank President Christine Lagarde said the economy could shrink 13% in the second quarter and 8.7% in 2020, according to a person familiar with her remarks. She said the worst hit on the labor market from the coronavirus crisis is still to come.
She warned that if leaders fail to deliver swiftly on the recovery package, market sentiment could shift against the bloc, creating trouble for governments in debt markets.