EU holds critical virtual summit on setting yearslong budget in a time of pandemic

European Union leaders edged forward on Thursday towards joint financing of an economic recovery after the coronavirus pandemic by agreeing to ask the European Commission to work out the details of such common support, EU sources said.

EU has seen a broad 'north vs. south' split on whether grants are better than loans for recovery

Members of the European Council are seen on the screen of a video conference call with French President Emmanuel Macron pictured at the Élysée Palace in Paris. (Ian Langsdon/The Associated Press)

European Union leaders edged forward on Thursday toward joint financing of an economic recovery from the coronavirus pandemic by agreeing to ask the European Commission to work out the details of such common support, EU sources said.

Diplomatic sources following the video conference of the bloc's 27 leaders said the discussion was less acrimonious than a month ago.

But the same divisions were clearly expressed with four "frugal" EU countries — Austria, Denmark, Sweden and the Netherlands — opposing recovery aid through grants.

The broader northern camp, which also includes Germany, spoke in favour of linking a new Recovery Fund to the bloc's next long-term budget for 2021-27, the sources said.

On the other side of the divide was Italian Prime Minister Giuseppe Conte, who told his peers, according to an EU official:

"The amount of the Recovery Fund should be 1.5 trillion [euros] and provide grants to member states. Grants are essential to preserve the single market, a level playing field, and to ensure a symmetric response to an asymmetric shock."

Emmanuel Macron is seen during the video conference as the EU wrestles with how to set its budget, a challeging undertaking even without the burden of the pandemic. France reiterated its support for relief grants. (Ian Langsdon/The Associated Press)

French President Emmanuel Macron said Europe's response required financial transfers to the hardest-hit states, and not just loans.

Speaking after the summit, Macron said the European Union's rescue package should be worth at least 5 to 10 per cent of EU gross domestic product.

Disagreements over the size and shape of the rescue package persisted, Macron said, adding that the European project had no future if member states failed to respond to the "exceptional shock."

Decisions likely weeks away

German Chancellor Angela Merkel, speaking ahead of the meeting, said it was clear that "in the spirit of solidarity, we should be prepared, over a limited period of time, to make very different — meaning much higher — contributions to the EU budget."

But she stressed Germany's continued resistance to issuing joint EU debt with common liabilities across member states, something that the hardest-hit southern countries — Spain, along with Italy — have demanded for weeks.

German Chancellor Angela Merkel is shown in a half-empty Reichstag in Berlin on Thursday. (Michael Sohn/The Associated Press)

The Commission is expected to make more specific proposals around the end of the month and the bloc's leaders could have another discussion around June.

But any final decision may take even longer, officials cautioned, because of the complexity of talks over the EU budget, called the Multi-annual Financial Framework (MFF), and bitter divisions in the bloc over the scale and scope of the necessary recovery financing.

A more even recovery would help preserve the EU's cherished single market of 450 million people and keep at bay euroskeptic parties trying to capitalize on popular resentment of EU economic inequalities.

WATCH | IMF on April 14 painted gloomy picture:

Beaten down by the coronavirus outbreak, the world economy in 2020 will suffer its worst year since the Great Depression of the 1930s, the International Monetary Fund says in its latest forecast. 3:01

Some national capitals argue that grants, rather than loans, are the way to go, because that would help avoid a large build-up of debt in the already highly indebted countries — another idea hard to swallow for the more frugal camp.

While discussion on the recovery has so far mostly pitted the ailing south against the more fiscally conservative north of the EU, the poorer eastern flank of the bloc has also said it should not be overlooked when the money is spent.

"We are slowly heading towards some form of joint debt. We'll never call it 'coronabonds' or 'eurobonds' and it will be raised by the Commission, rather than member states together," said another senior EU diplomat involved in preparing the summit.

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