EU forges spending deal
Collective bond sales, nonrepayable grants among features
BRUSSELS — After nearly five days of haggling, European Union leaders early on Tuesday agreed to a landmark spending package to rescue their economies from the ravages of the pandemic.
The $857 billion stimulus agreement was spearheaded by Chancellor Angela Merkel of Germany and President Emmanuel Macron of France.
The deal was notable for its firsts: European countries will raise large sums by selling bonds collectively, rather than individually; and much of that money will be handed out to member nations hit hardest by the pandemic as grants that do not have to be repaid, and not as loans that would swell their national debts.
“Europe has shown it is able to break new ground in a special situation. Exceptional situations require exceptional measures,” Merkel said in a news conference at dawn. “A very special construct of 27 countries of different backgrounds is actually able to act together, and it has proven it.”
But the negotiations in Brussels were notable, too, for their rancor.
The talks were defined by shifting roles among members now jostling to make their voices heard and for leadership in the absence of Britain, which had been fastidious about rules in past summits.
This time, Merkel, unusually for a German leader, and holding the EU’s rotating presidency, put her finger on the scale on behalf of hard-hit southern countries and did battle with the nations she once championed, the northern members that have been less affected by the virus and are wary of the vast sums being thrown around.
As talks broke up without a deal around dawn Monday, Mark Rutte, the Dutch prime minister, told his country’s media that he didn’t care if other leaders mockingly called him “Mr. No” for blocking the agreement. [They did.]
It was Rutte who stepped into the vacuum left by Germany’s shift and Britain’s departure to lead the so-called Frugal Four, which include his nation as well as Austria, Sweden and Denmark. Occasionally, the “frugals” became five with the support of Finland.
In addition to raising cash and extending grants, the package will increase lending and deploy other, more traditional stimulus methods to arrest and reverse the economic free-fall that threatens the stability of the world’s richest bloc of nations.
Economists predict a recession far worse than anything since World War II. France, Italy and Spain, the bloc’s second-, third- and fourth-largest economies, are expected to suffer the most, clocking in contractions of around 10% this year.
Greece and other smaller economies that are still recovering from the last recession will also be badly affected by the downturn. But heavy debt loads in many of these nations make them reluctant to amass yet more debt, and their budgets aren’t sufficient to self-fund their recoveries. That led them to turn to the EU for help.
Together with the vast bond-buying program by the European Central Bank, national stimulus plans worth trillions of euros, and other, smaller EU support schemes for banks, businesses and workers, European leaders hope to reverse the recession in 2021 and spend their way into a rapid and powerful recovery.
They also agreed on Tuesday on the bloc’s regular budget for the next seven years: $1.26 trillion to finance the normal EU policies on agriculture, migration and hundreds of other programs.
To bring Hungary and Poland on board, EU leaders decided to water down the caveat making funding conditional on the rule-of-law benchmarks that the two nations’ illiberal governments are violating.
In another concession to Poland, the bloc’s most coal-dependent nation, a requirement was dropped that would have committed the country to being carbon neutral by 2050 to draw on parts of the funds.
The deal reached on Tuesday is significant in that more creditworthy EU nations will be underwriting loans to fund the recoveries of countries that would otherwise face onerous borrowing costs.
The Netherlands and Austria were hostile to the very idea of borrowing money and simply giving much of it to benefit mostly southern, weaker economies.
Under significant pressure at home as elections approach next March, the Dutch prime minister, Rutte, advocated loudly for fewer handouts to those nations, among them Italy and Spain, that have been hardest hit by the pandemic but that also have structurally weak, unreformed economies.
The Netherlands and other wealthier nations with healthier public finances are concerned that the commonly funded aid would simply go into a bottomless pit of spending that doesn’t truly help these economies recover without changes to make it easier to reduce bureaucracy, create jobs and stimulate growth.