EU summit may not reach COVID-19 recovery fund deal

German Chancellor Angela Merkel said Monday it is unclear whether EU leaders will reach agreement on a 750-billion-euro pandemic recovery fund at this week’s summit, amid resistance from more frugal member states.

“The road that we have to tread is still rocky,” said Merkel ahead of Friday’s EU special summit. “I don’t know if we will reach an agreement.”

She stressed however that the recovery fund “must be massive” and not be cut in size.

“Because the task is enormous, the answer must also be huge,” she said, after hosting Italian Prime Minister Giuseppe Conte for talks. “It must be particularly powerful in order to signal clearly that Europe wants to hold together in this difficult time. There is a political dimension to it.”

Germany and Italy agree in principle on proposals to bridge gaps among EU states on the stimulus plan and a long-term EU budget, Merkel said.

On July 17-18, European Council President Charles Michel will chair the first face-to-face talks of the 27 European Union heads since lockdowns took hold in March and feuds over how to respond to the coronavirus divided the bloc.

Michel has presented an EU budget for 2021-27 of 1.074 trillion euros and a recovery fund of 750 billion euros for pandemic-hammered economies, with two-thirds of that to be in the form of free grants and a third issued as repayable loans.

While the recovery fund was officially put forward by the European Commission, Merkel had drawn up the backbone of it along with French President Emmanuel Macron.

Nevertheless, other northern member states – the Netherlands, Austria, Denmark and Sweden – have taken on the role of reining in spending. They insist that loans with tough conditions attached, rather than grants, should be the preferred method of rescue.

Dutch Prime Minister Mark Rutte – the key hawkish figure in the talks – has insisted on enshrining economic reforms as conditions for accessing the funds, something the south wants to avoid.

Conte warned during the news conference with Merkel that EU economic stimulus for member states should not carry too much conditionality.

He said Italy was happy for EU institutions to monitor its economic reforms but imposing excessively stringent conditions would be counterproductive.

“It’s not in anybody’s interests to introduce conditionality that would compromise the support of the program or give it scarce practical impact,” he said.

Conte urged a quick deal. “We have to act swiftly, because history teaches us that the best reaction is not worth much if it comes too slowly.”

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