Habemus a deal

The deal on a recovery fund reached by European leaders is not perfect and the fierce debate to seal it did not send a strong signal of unity. But the deal does open the road to greater EU integration.

Nadia Gharbi, Europe Economist

Habemus a deal

After days of negotiations at the European Council summit in Brussels, European leaders announced a deal on a recovery plan and a multi-year EU budget. The agreement maintains the €750bn (5.5% of 2019 EU GDP) overall envelope proposed by the European Commission in May but the split between grants and loans has been tweaked in favour of loans given pushback from Netherlands, Austria, Denmark and Sweden, the so-called ‘frugal four’. The final version will consist of €390bn of grants (versus €500bn in the Commission proposal) and €360bn of loans (versus €250bn in the initial proposal).

Importantly, the core element of Next Generation EU, the ‘Recovery and Resilience Facility’ (RFF) has been increased to €672.5bn from €560bn, with €312.5bn in grants (up from €310bn) and €360bn in loans (up from €250bn), with 70% of all RRF grants to be disbursed in 2021-2022. Countries requesting funds will have to submit a ‘recovery and resilience’ plan for approval by the European Commission and the Council by a qualified majority (and not by unanimity as Dutch prime minister Rutte wanted).

One lesson from the long-drawn-out negotiations is that while the Franco-German alliance was necessary it was not sufficient to reach an agreement. To get the ‘frugal four’ on side, several adjustments had to be made to the initial proposal. Apart from the reduction of the amount of grants, member states agreed to boost the budget rebates the ‘frugal four’ receive on their EU budget contributions. Originally, the Commission hoped to abolish all rebates post-Brexit. In addition, references to respect for the rule of law were substantially toned down in the final proposal given opposition from some eastern European countries.

Agreement at the European Council summit was the first major hurdle to overcome before the EU budget and recovery fund can be put in place. The next procedural steps will be the agreement’s ratification by both the European Parliament and the 27 national parliaments. The next plenary session of the European Parliament takes place on September 14-17.

To quote Jean Monnet, “Europe will be forged in crises, and will be the sum of the solutions adopted for those crises.” Indeed, each of the major crises of recent years in the EU has sparked progress towards more integration. Covid-19 may be no exception.

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