EU leaders brace for tense call sans any concrete plan

Bloomberg

European Union (EU) leaders head to a key virtual summit on Thursday without any concrete proposals from the bloc’s institutions on how to finance a controversial economic recovery fund, raising the chances of yet another inconclusive showdown.
A “roadmap” distributed to national delegations from EU Council President Charles Michel, who will chair the video conference, contains no details on the amount, the specific objectives, the timeframe and nature of the investment needed to stem the deepest recession in living memory. The absence of detailed proposals paves the way for a difficult call, amid deep divisions between member states on how to share the burden of the spending needed to salvage their damaged economies.
A “European Recovery Fund” should be established as soon as possible, Michel said in his letter to leaders. “I propose that we task the Commission to analyse the exact needs and come up with a proposal that is commensurate with the challenge we are facing,” he said.
The wording signals that no concrete decisions may be reached on Thursday, with leaders instead asking the bloc’s executive arm to come up with a proposal for a boosted joint budget, which in turn may take weeks or even months of negotiations to agree on. Michel’s memo largely shuns the lobbying from countries such as Italy, France, and Spain to essentially allow for joint debt issuance to finance recovery efforts.
The document “is a disappointment,” said Guntram Wolff, director of the Brussels-based Bruegel think tank. “No strategy, not even a proper recognition of the issue. Is this all the ambition the EU institutions have at this stage?” Wolff said in a tweet.
Normally set at around 1 trillion euros ($1.1 trillion) spread across 27 countries over seven years, the EU budget is likely insufficient for the funding that will be required to rebuild the economy after Covid-19. The new budget for the period between 2021-2027 “will have to take into account the effects of the crisis on regions and affected sectors,” Michel said.
The leaders disagree on how much in additional funds for the budget will be needed, how they will be sourced, whether they will be distributed in the form of grants or loans, and whether the funding will come with conditions attached.
“We will of course make a contribution and everyone can rely on that,” Deputy Foreign Minister Michael Roth told reporters in Berlin on Wednesday. “But it’s also important that we see a willingness to compromise on all sides.”
Europe is entering what is projected to be the steepest recession in living memory, while the timing of recovery depends on factors largely outside the control of policymakers, such as the availability of a vaccine or an antiviral cure for the lethal coronavirus. The drop in economic output and the massive funds needed to keep businesses and households afloat has investors doubting whether highly indebted European countries can foot the bill.
The Commission told EU government envoys that the bloc’s economic output will contract between 7.5% and 10% this year, according to an official familiar with a behind-closed doors meeting earlier this week. Yields on Italian 10-year notes rose by another 4 basis points to 2.19% on Wednesday morning, more than twice the rate on the same securities in mid-February.