After five long days and nights of negotiations, the second-longest summit in EU history finally succeeded in producing a stimulus deal. In addition, the budget for the next seven years was also approved.
European leaders first met on Friday to begin their discussion of a stimulus bill worth 750 billion euro proposed by the European Commission. After the first two days of the negotiations failed to produce any results, many feared that the talks will have to continue at another time.
Instead, the heads of the governments of all EU member states agreed to stay in Brussels longer and continue negotiating, fighting for a compromise.
Tensions ran particularly high on Sunday when the rift between the two camps within the EU became most apparent. Both French President Emmanuel Macron and the Prime Minister of Poland made remarks against the more financially conservative countries, who were resisting the bill the most.
The group used to be known as the Frugal Four and included the Netherlands, Austria, Sweden, and Denmark, but by Sunday they became the Frugal Five, after Finland joined their camp. Those are all wealthy countries who contribute substantially to the EU budget. However, they would not be the main beneficiaries of the recovery fund because they were not as affected by the coronavirus as other states were.
Italy, Spain, France, Portugal, and other countries around the Mediterranean (also referred to as “the South” in the talks) experienced far worse outbreaks and took much bigger dents to their economies, so they will receive most of the money in this stimulus package.
The main problem was that the initial proposal by the European Commission had 500 billion euro as grants and 250 billion as loans. The frugals wanted more loans, fewer grants, and a greater degree of accountability for how the money is being spent.
Today around 5 in the morning the two sides finally reached an agreement. The grants have dropped to 390 billion, the loans were increased to 360. Moreover, a new mechanism was accepted whereby EU members could stop the payments to any country they think is not handling them properly or is not respecting the rule of EU law.
Thanks to this compromise, investors believe that the European Union will be able to shake off the worst of the damage caused by the coronavirus pandemic in what is officially the worst recession since World War II. The news was positive for both the euro and European stock indices.
