EU’s virus recovery plan: historic but imperfect

Brussels – The 750-billion-euro coronavirus recovery deal struck by EU leaders may be a historic landmark, but analysts are already warning it comes with substantial flaws.

The agreement, sealed on Tuesday after four days and four nights of bitter haggling among the 27 EU countries, would have seemed unimaginable just a few months ago.

But the pandemic — and the economic chaos wrought by lockdowns enforced to slow its spread — forced Europe to shift previously immovable red lines.

Germany in particular, the continent’s economic powerhouse, fell into line with France and agreed to huge-scale borrowing in the name of the EU — shattering a taboo in a country that had previously refused to countenance common debt.

“This opens the door to a mechanism that will make it possible to keep Europe in history,” said Anne-Laure Delatteof the Cepii research centre.

The scale of the recession threatening Europe forced EU leaders to react quickly, at least by their standards.

“The risk of not having a deal was very high and it would have sent very negative political and economic messages that the EU was not able to react to a common challenge,” said Marta Pilati of the European Policy centre (EPC).

 

– Cuts, control –

 

But the experts point out at least five areas of concern.

Firstly, the level of grants — as opposed to loans — given to countries most affected by the coronavirus, such as Italy and Spain.

In the initial blueprint, the 750 billion euro package was to be made up of 500 billion in grants and 250 billion in loans.

But dogged opposition from the so-called “frugal” countries — the Netherlands, Austria, Denmark and Sweden, joined by Finland — saw the level of grants fall to 390 billion.

“It’s a pity that we negotiated a discount on grants compared to loans,” Ms Delatte said.

Second, control over how the recipients of the funds will spend their money.

To overcome the reluctance of the frugals, who consider some of the southern EU states to be spendthrifts, the grants come with an approval mechanism attached.

This allows one or more member state who consider that a particular country’s spending plans are unsuitable to ask for the matter to be studied at a European summit.

Pilati said the mechanism was “quite complex” and could be slow, while Delatte warned it would put the system at the mercy of national elections and domestic political considerations.

Leaders such as Dutch Prime Minister Mark Rutte, who faces tough legislative elections next year, could be particularly intransigent.

A third area of concern is the link between funding and respect for the rule of law by member states.

– Rule of law –

 

Budapest and Warsaw, whose governments are in the EU’s sights for alleged breaches of norms on judicial independence and media freedom, fought hard to water down these provisions.

Philippe Lamberts, joint leader of the Greens group in the European Parliament, said the link had been watered down too far.

“The rule of law conditionality remains too fuzzy to constitute a real lever to bring member states to respect what they signed up for when becoming members,” he said.

Fourthly, experts warn the EU 27 have missed an opportunity to modernise the way the bloc’s funds are spent.

In order to reach an agreement, programmes for innovation, the digital economy and the environment have been reduced.

Finally, in the face of resistance from “frugals”, who consider their net contributions to the EU budget disproportionate, leaders agreed to significantly increase the rebates they get.

By Céline Le Prioux