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EU civil war: Brussels predicts summit FAILURE as leaders divided over crunch plan

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With an unprecedented recession looming large over the bloc, the EU27 have agreed to establish a recovery fund for pandemic-stricken regions and industries. The coronavirus outbreak is set to plunge the EU into the worst recession in its history. European Commission chief Ursula von der Leyen has proposed the creation of the EU’s first joint-debt mechanism to fund billions in handouts.

Under the German’s blueprint, eurocrats will borrow €500 billion on international markets before distributing the money as cash grants to the worst-hit countries, regions and industries.

A further €250 billion will be dished out in the form of low-cost loans.

The fund will leave the bloc’s taxpayers saddled with the debt burden of the coronavirus recovery, with the borrowing expected to be paid back over the next 38 years.

The Commission also wants to introduce new EU taxes, including a level on single-use plastics, a digital tax or a tax on multinationals, to help foot the bill.

EU leaders

EU leaders to hold talks over €750 billion recovery fund plan (Image: GETTY)

Angela Merkel

German Chancellor Angela Merkel has urged EU colleagues to reach a deal before the summer break (Image: GETTY)

German Chancellor Angela Merkel yesterday ruled out the possibility of a deal being stuck at the crunch European summit.

The veteran leader urged her EU colleagues to try and get a deal before the summer break, claiming the “starting position is anything but easy”.

“The pandemic shows us how vulnerable Europe is,” she told MPs.

“Therefore I want to stress to you that cohesion and solidarity in Europe were never as important as they are today.”

Mark Rutte

Dutch Prime Minister Mark Rutte wants tough conditions attached to bailout fund (Image: GETTY)

The recovery fund under discussion draw heavily on a plan put forward last month by Mrs Merkel and French President Emmanuel Macron.

But it faces strong opposition from the so-called “Frugal Four” – Austria, Sweden, Denmark and the Netherlands – who want the aid to be handed out in the form of loans rather than grants.

They have even suggested they could sign up to the fund if bailouts are linked to austerity reforms.

Spain and Italy, the EU members worst-affected by the pandemic, have called for minimum conditionality.

On the possibility of a deal today, an EU diplomat said: “It is all still premature, we just want to know a lot more.

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Giuseppe Conte

Italian PM Giuseppe Conte has called for loose conditionality to access EU grants (Image: GETTY)

“If we are an EU are going to borrow money, we don’t want to say ‘yes’ first and only then work out what we spend it on, how we spend it and who gets what.”

EU officials are confident member states will eventually support a recovery fund, which will be linked to the bloc’s €1 trillion seven-year budget.

One senior source said talks are positively moving forward since no member state “immediately” rejected the Commission’s proposal.

However, another official suggested the bloc might have to look at making “fiscal adjustments” to ensure public debt levels are sustainable.

Public debt is expected to soar across the EU this year, reaching 196 percent of its Gross Domestic Product in Greece, 159 percent in Italy, 131 percent in Portugal, 116 percent in France and 115 percent in Spain.

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The source said: “We will look at fiscal adjustments, of course.”

The EU expects to reach a political agreement in July.

European Council President Charles Michel is hopeful he can call the first face-to-face summit early next month.

A second summit in short succession could even be called in order to breakdown the divides between capitals.

Before any deal can be signed off, it must first receive unanimous backing from the EU’s 27 member states.



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