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EU chiefs agree to $1 trillion coronavirus bailout

EU leaders emerge from a four-day and four-night summit with a rescue plan for economies shattered by the pandemic.

The European Commission’s Ursula von der Leyen and the European Council’s Charles Michel celebrate on Tuesday. Picture: AFP
The European Commission’s Ursula von der Leyen and the European Council’s Charles Michel celebrate on Tuesday. Picture: AFP

EU leaders emerged from a four-day and four-night summit on Tuesday to celebrate a rescue plan for economies left shattered by the coronavirus pandemic.

The 750bn ($1.2 trillion) deal was sealed after negotiations that included threats of a French walkout and a Hungarian veto — and fierce opposition from The Netherlands and Austria to a too generous package.

“These were of course difficult negotiations in very difficult times for all Europeans,” said European Council president Charles Michel, who described the more than 90 hours of talks “a marathon which ended in success for all 27 member states, but especially for the people”.

The package was made possible by the crucial backing of Germany and France, and includes the biggest joint borrowing by the 27 members of the bloc, something that had been resisted by Berlin and the so-called frugal northern states for generations.

The deal is a victory for French President Emmanuel Mac­ron, who came to office in 2017 committed to strengthen the EU but who had struggled to deliver against states with less ambition.

“This is a historic change for Europe,” Mr Macron said in a press conference with German Chancellor Angela Merkel, who spoke of her relief that Europe had shown itself equal to “the greatest crisis in the history of the European Union”.

The package will send tens of billions of euros to countries hardest hit by the virus, most notably heavily indebted Spain and Italy which had lobbied hard for a major gesture from their EU partners. Their call for solidarity was met with fierce opposition by the frugals, a group of small northern nations led by The Netherlands, who believed the stimulus package was unnecessary.

Spanish Prime Minister Pedro Sanchez hailed “a Marshall Plan for Europe”, that would boost Spain’s suffering economy by 140bn over the next six years.

But Prime Minister Mark Rutte of The Netherlands denied that the advent of joint borrowing for the rescue heralded the start of what he had warned of before the talks — a “transfer union” with a permanent north-south transfer of wealth. “This is a one-off, there is a clear necessity for this given the excessive situation,” he said.

The frugals were also deeply apprehensive of sending money to southern countries they see as too lax with public spending.

To meet their concerns, payouts from the package will come with strings attached — a hard pill to swallow for Rome and Madrid, which deeply resisted anything resembling the harsh bailouts imposed on Greece, Portugal or Ireland during the debt crisis. The frugals were also enticed with heavy rebates on their EU contributions.

The recovery package will complement the unprecedented monetary stimulus at the European Central Bank that has largely succeeded in reassuring the financial markets despite a catastrophic recession in Europe.

Overall, the deal will dole out 390bn in the form of grants to pandemic-hit countries — lower than an original 500bn proposal made by France and Germany. Another 360bn was to be disbursed in loans.

Spending will be closely controlled and must be devoted to policies seen as compatible with European priorities, including politically difficult economic reforms as well as the environment.

The European Commission will be in charge of distributing the funds, with the 27 member states able to turn down a spending plan if a weighted majority of them decide to intervene.

The rescue package was agreed along with the EU’s long-term budget, bringing the agreed spending to 1.8 trillion to 2027.

The plan was nearly up-ended by Hungary and Poland due to a demand EU payouts be tied to upholding freedom of speech and an independent judiciary. Budapest and Warsaw are under fire for offending EU norms, but a proposal to tie the EU budget to those concerns was watered down to the satisfaction of Hungarian Prime Minister Viktor Orban and Poland’s Andrzej Duda.

AFP

Read related topics:Coronavirus

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Original URL: https://www.theaustralian.com.au/world/eu-chiefs-agree-to-1-trillion-coronavirus-bailout/news-story/f5255f323f85385c3fad6771c7f35f1c