The heads of the governments of the 27 European Union member states are gathering today for their first in-person summit since the coronavirus pandemic began. Over the next two days, these leaders will be making important decisions about the EU’s budget and the European Commission’s stimulus proposal.
Earlier in 2020 the European Commission came forward with a plan to pump 750 billion euro into the bloc’s economy, to be used to mitigate some of the damage caused by the pandemic. The lockdowns all across Europe at the end of Q1 and during most of Q2 of 2020 have been devastating for virtually all member states, though some countries were more heavily impacted than others.
The latter group includes Italy, Spain, and France, who experienced worse Covid-19 outbreaks with higher lethality rates. Wary of the virus, they were forced to enter lockdowns earlier than other countries and to ease them later than the rest. Among the three, Italy already had serious financial problems long before the pandemic began.
It is expected that the more heavily affected countries will require a higher chunk of the stimulus package. However, those countries are also not in a position where they can contribute to it much, meaning that “richer” EU members will have to pay for the economic recovery of their poorer neighbors.
This idea does not sit well with some of those well-to-do countries such as the Netherlands, Austria, Denmark, and Sweden. Known as the Frugal Four, these states refused to back the recovery fund at the previous EU summit last month.
Today the Dutch Prime Minister stated that the Netherlands will agree to the proposal if the money is given as loans instead of grants. But the Prime Ministers of Spain, Italy, and Greece have all been in favor of grants over loans, fearing a future of austerity measures similar to what followed the 2008 financial crisis.
This huge rift between north and south prevented an agreement in the past and is putting the success of this week’s summit in question.
Another problem is that the European Union will seek to gain assurances that the countries receiving financial aid will adhere closely to EU laws. This is a problem for Poland and Hungary, who have both been moving towards the far right in recent years and have earned the EU’s anger in the past for eroding the democratic values the bloc is trying to enforce in all member states.
The proposal needs to be unanimously backed by all 27 member states. Nevertheless, it can fail to meet this level of support. Whether it is the Frugal Four voting against it out of financial concerns, or Poland and Hungary rejecting it because they seek less oversight from the EU, it is more likely that the stimulus proposal will not be accepted this week.
Still, the European economy needs the stimulus badly. If the 27 heads of state manage to agree to a compromise, the euro will receive a major boost. Even if they don’t, if some measures are taken and a future discussion of the proposal remains on the table, the euro can benefit from the hopes that the recovery fund will eventually be accepted, in one form or another.
