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Vulcan Insight: EU Leaders Seek Budget and Recovery Deal

For the first time since the European Commission’s €1.85 billion budget and Recovery Fund proposal, EU Heads of State and Government met on Friday (19 June) to seek an agreement on its substance. Considering the deep divisions between countries and different political alliances, Friday’s EU leaders’ summit was never expected to result in a breakthrough. Rather, most Heads of State and Government considered their online get together as an initial exchange of views and positions, as German Chancellor Angela Merkel informed the Bundestag on Thursday.

High-stakes summits, which would usually run into the early hours of the morning and produce tangible results, are not expected until EU leaders are allowed to return to physical meetings in Brussels. This may happen in July, although it is expected that budget discussions will require a number of physical meetings before an agreement can be reached. That being said, according to Commission President von der Leyen, leaders recognise that an agreement is urgent and should, preferably, be reached before the summer recess to allow negotiation time with the European Parliament.

As expected, the divisions primarily revolved around the by now well-established fault lines of the overall volume of the proposed €1.1 trillion MFF, which some countries consider too high, and the distribution mechanism between cohesion funds and forward-looking investment. With respect to the Commission’s proposed Next Generation Recovery Fund, divisions persist on the use of loans and grants, the overall size of the proposed €750 billion fund as well as the overall timeframe of the fund (2021 – 2024) and the proposed repayment period.

According to German Chancellor Angela Merkel, speaking at her post-summit press conference, accelerating the current Commission proposal to begin repaying the accrued debt in this MFF period would substantially increase its creditability and acceptance among Member States. Originally, the European Commission had proposed to repay the debts during a 30-year period between 2028 and 2058. Such a change would alleviate the concern by some countries, in particular the ‘Frugal Four’, of a so-called “debt-union through the backdoor.”

Positively, Chancellor Merkel welcomed that despite the numerous concerns by Member States, there does not seem to be significant opposition to the Recovery Fund’s substance – that of the European Commission issuing bonds to finance the recovery.

Compliments of Vulcan Consulting – a member of the EACCNY.