If EU leaders fail to reach an agreement on a pandemic recovery package next week, “we will enter into difficulties,” the EU Commissioner for Budget, Johannes Hahn, warned during an event in Brussels on Tuesday (7 July).
The Union is facing its worst economic crisis, with growth expected to fall by 8.3% according to the latest European Commission forecast. If leaders want to boost their economies, they need to agree on the €1.1 trillion seven-year budget and a €750 billion worth recovery instrument, Hanh told an event organised by the economic think tank Bruegel.
“People expect that politicians can take decisions and need to see trust and confidence,” the Commissioner said, “if there is no confidence, no hope, there is no consumption and If there is no consumption there is no investment.”
The Commissioner insisted it was important for the EU to prove it is able to make decisions and provide the firepower needed to counter the socio-economic consequences of the COVID-19 crisis but beyond that, if there were to be a second wave, institutions are “prepared with the financial means to face such a challenge.”
A senior EU diplomatic source said an agreement on the pandemic recovery package next week is “possible” but admitted that the positions of the EU member states remain “quite far from each other.”
Hahn warned that the proposal by the Commission was accompanied by 22 legal texts that will need to be negotiated and that already face “important time constraints”.
The allocation of funds designed by Commission has been questioned, with some arguing that countries with structural deficits will benefit more than countries hard-hit by the crisis.
Hahn said “instruments aiming at the quick response, where the financial liquidity is given, and the instruments meant to tackle the structural problems” needed to be distinguished.
While the use of both remaining and new cohesion funds, the bloc’s regional development tool, is meant to tackle the direct consequences of the crisis, the Recovery and Resilience Facility aims at supporting countries with structural problems, which made them more vulnerable to the economic fallout of the pandemic.
The Commissioner said lessons needed to be learnt and some countries “more hit than others, are always the same”. These countries, he said, “are less resilient.” While cohesion money has served to inject liquidity into the economy, there is a need to help these states “to recover faster and be more resilient in the future.”
These asymmetries are what the EU executive wants to tackle with the ‘recovery and resilience’ instrument.
However, both Hahn and Economy Commissioner Paolo Gentiloni failed to give a straight answer as to why Poland, the least affected country by the health and financial crisis, is on course to access a big chunk of the funds. “The Commission’s rationale is a good one. Perfection does not exist,” Gentiloni said.
Troika yes or no
In a recent interview, Greek Prime Minister Kyriakos Mitsotakis said he will not abide by troika-like rules to access the pandemic recovery funds, and he is not alone. Italy and Spain have voiced their view that conditionality should be minimal.
However, a number of countries, including the so-called ‘Frugal Four’ (the Netherlands, Denmark, Sweden and Austria), have been asking for strings attached to new EU funding.
Hahn, however, does not see “a big contradiction” between the wishes of the South and the requirements of the Frugals. “We can reconcile the ideas into an architecture that reflects both sides’ expectations,” he said.
For that, the European Semester can serve as a benchmark to identify where the needs for investments are. Member states will come up with a national reform project to be approved by both the Commission and the Council, based on milestones.
“I could imagine that there could be an advanced payment but then, further disbursements will depend on fulfilling certain milestone,” Hahn said.
European Council President Charles Michel is expected to present a new so-called ‘negobox,’ a proposal to be negotiated by the member states, by the end of the week based on the Commission draft budget and aimed at accommodating the different countries’ positions.
Contacts have been intensified to make sure EU leaders can close a deal before the summer break. On Wednesday, Michel will be meeting European Commission President Ursula von der Leyen, who called a mini-summit last week.
Chancellor Angela Merkel as the chief of the German presidency of the EU Council, and David Sassoli, head of the European Parliament, which has to give its consent to a potential deal, will join them. In an interview with EURACTIV Italy, Sassoli recalled that EU lawmakers have the last word. “This is not a process that ends at the Council,” he warned.
[Edited by Zoran Radosavljevic]