On the morning of Tuesday, 21st July, the European Commission reached an agreement to roll out a €750bn coronavirus pandemic recovery fund, after four painstaking days of discussion and negotiation between 27 heads of state and government. According to The Guardian, the COVID-19 pandemic has killed approximately 135,000 EU citizens to date and instigated an economic downturn not seen since the Great Depression, with estimates projecting an 8.3% contraction of the European economy this year.
The economic fallout of the virus has been felt disproportionately across Europe, with southern countries such as Spain and Italy being hardest hit. French President Emmanuel Macron emphasised the need for a deal to be reached in a timely manner, as Europe is facing an “unprecedented health, economic and social crisis”.
Although the urgency to come to an agreement on a recovery package was palpable, the process took place during the bloc’s most strenuous summit in nearly two decades. The original schedule of two days was drawn out to almost five days, due to difficulties caused by ideological differences among the participating heads of state.
The original proposition by the European Commission constituted a €750bn fund, of which €500bn would be distributed in the form of grants to nations hit hardest by the virus, and the remainder in repayable loans. This proposal was met with resistance from wealthy northern nations such as Austria, Finland, Sweden, Denmark, and the Netherlands, who were thereafter nicknamed the “frugals”.
The “frugals” wanted to scale back grant-based funding from the proposed amount of €500bn to €350bn, to be coupled with €350bn in loans. This stance was put forward not only to limit costs, but to also preserve their ability to freeze funds if the governments in question did not use the disbursement to carry out necessary economic reform.
Frustrations rose as the summit continued over Sunday and into Monday. The desire for a deal to be reached was overwhelming; Italy’s Prime Minister Giuseppe Conte commented that failure to do so would lead to the “destruction of Europe’s single market”. However, there was a shared reluctance to reach a settlement at the expense of drawing back on Europe’s COVID-19 recovery fund amount, as per the demands of the “frugal” states; the scale of the first proposed amount was deemed necessary by the likes of Emmanuel Macron and Angela Merkel. Failure to navigate the stalemate was reflected in global stocks on Monday: Japan’s Topix index fell 0.4% and Australia’s S&P/ASX 200 fell 0.5%.
The agreement that was finally reached on the fifth day of the summit constituted a ‘messy bundle of compromises’. Financially, the agreed recovery package would have €390bn in grants, and €360 in loans. In a novel turn, the European Commission would be allowed to issue bonds on international markets in order to raise capital to financially buffer member states in need. The financing was agreed to with guarantees made to the “frugals” that the disbursement would be halted and reviewed, if funds were not being utilized for the purposes of economic reform. The deal also stipulated that the frugal nations would receive rebates on budget contributions, the negotiations of which were ongoing alongside the recovery package discussions.
Although the European Commission seems to have reached a ‘historic agreement’ with this €750bn package, there are lingering uncertainties as to the challenges that may emerge. In particular, the agreement is subject to approval by the European Parliament, whose assent may not be as simple as anticipated. This is primarily due to several MEPs demanding that the package includes provisions that allow for the freezing of funds, should countries disregard certain democratic principles.