EU leaders hunker down to clinch virus rescue

Brussels (AFP) – European leaders hunkered down on Friday for two days of tortuous negotiations to thrash out the terms of a huge post-coronavirus economic rescue plan.

Europe is in the depths of its deepest recession since World War II and the 27 leaders are seeking common ground on the terms of a 750-billion-euro stimulus package that would help lift the hardest hit by the pandemic.

There is stern resistance from a group of richer and smaller nations led by the Netherlands and Austria that are loathe to hand out cash to countries such as Spain or Italy they see as too lax with public spending.

Germany’s Chancellor Angela Merkel turned 66 on Friday and, as she and her 26 colleagues began this first in-person summit since February, they exchanged elbow bumps instead of handshakes and exchanged gifts.

But the high spirits quickly turned sombre once the talks began, with leaders taking their places in an EU headquarters with reduced staff and social distancing imposed.

“The differences are still very, very large and I cannot therefore predict whether we will be able to reach an agreement this time,” Merkel said as she arrived.

“It would be desirable, but we also have to face reality,” she said. “That is why I expect very, very difficult negotiations.”

France’s President Emmanuel Macron described it as a “moment of truth” before beginning the first session of talks that diplomats described as cordial but slow.

Merkel and Macron are backing a recovery package made up of a mixture of loans and subsidies to member states to revive economies shattered by the virus and preventive lockdowns.

“It’s our European project which is in play here,” Macron warned, before meeting the Netherlands’ Prime Minister Mark Rutte — who is holding out against doling out cash without tough conditions and an effective power of veto over national rescue plans.

– Difficult days –

“Solidarity, yes” Rutte said of countries that don’t have the budget to stoke a meaningful recovery. “But at the same time, you can also ask those countries to do everything possible to solve this yourselves the next time. And you do this through reforms, in the labour market, in pensions etc.”

Friday’s talks are set to run into Saturday and perhaps even Sunday, but few here are confident of a breakthrough, despite the tight timetable, so another summit may well follow later this month.

“The good news is that no one has left the room yet,” one European diplomat told AFP.

“It seems that the bosses are saving their energy for what comes tomorrow,” said a diplomat from another country.

Rutte put the chance of success this weekend at less than 50 percent.

Summit host Charles Michel, the president of the European Council, has tried to create a sense of momentum after previous coronavirus-era videoconferences served only to underline the leaders’ differences.

Michel called it a “difficult negotiation” and “not only a question of money but a question of the future of the European project.”

– Loans or grants? –

Michel’s draft plan foresees a recovery package, made up of 250 billion in loans and 500 billion in grants and subsidies that would not have to be repaid by the recipient member states.

The Netherlands has emerged as the most likely hold out, but Rutte’s position is backed to varying degrees by fellow members of the so-called “Frugal Four” — Sweden, Denmark and Austria.

Austrian Prime Minister Sebastian Kurz said that he and his allies “will not agree to any measures leading to a permanent ‘Transfer Union’.”

They want any loans or grants to come with strict conditions attached to ensure that heavily-indebted countries carry out labour market reform. This is furiously opposed by the south.

Both Michel and Merkel, whose country has just taken on the rolling six-month presidency of the EU, will struggle to broker any compromise — one diplomat quipped that they were trying to “defrugalise” the debate.

This package is in addition to the planned 1,074-billion-euro seven-year EU budget from 2021 to 2027 that the leaders must also agree in the coming weeks or months.