European leaders have reached a breakthrough agreement on a massive joint recovery package to cushion the economic fallout from the coronavirus pandemic.
To tackle the deepest recession in its history, the EU will set up a €750-billion coronavirus fund, partly based on common borrowing, to be handed out as loans and grants to the hardest-hit member states. That comes on top of a seven-year, €1.074-trillion EU budget.
French President Emmanuel Macron hailed the deal as a "historic day for Europe".
German Chancellor Angela Merkel said "extraordinary events" required "extraordinary new methods," while Spain’s Prime Minister Pedro Sanchez likened the recovery package to Europe’s post-war Marshall Plan.
The deal’s novelty lies in the fact that for the first time ever, the European Commission is allowed to borrow on international markets to then transfer the funds to member states in need, said Alessandro Leipold, Chief Economist at the Lisbon Council and a former senior official at the International Monetary Fund.
"This is really a show of solidarity and something that was completely unthinkable before COVID-19. So it is ground-breaking in that respect," Leipold said.
Yet the path to consensus was far from smooth, taking four days and nights of wrangling over money and sovereignty.
'No such thing as perfection'
The richer so-called "frugals" – five wealthy northern nations led by the Netherlands – have been pushing for fewer handouts and more conditions on how the money can be spent, including tying EU funds to the respect of democratic values.
At first, Merkel and Macron wanted the grants to total €500 billion, but the figure was brought down to €390 billion, and the "frugals" got guarantees that these funds had to be linked to economic reforms.
"There is no such thing as perfection, but we have managed to make progress," Macron said.
"The sign of a successful European compromise is that no one loves it," said Rebecca Christie, a visiting fellow at Bruegel Think Tank in Brussels. "It took four days, there's going to be a lot of money on the table, and there's time to improve it (the deal) later."
Finland's former Prime Minister Alexander Stubb said that while the summit was one of the EU’s most drawn-out ever, the bloc was remarkably swift at agreeing on such a significant package.
"It's historic in terms of size, it's historic in terms of scope, and actually, it's historic in terms of speed," Stubb told Euronews, adding that the move had "deepened European integration in an unprecedented way."
"I've never seen a budget negotiation being finished basically half a year before it was supposed to be finished. I've never seen a €750 billion recovery package balanced between loans and grants being agreed, basically, within two months."
Stubb, now Director of the European University Institute in Florence, said EU leaders were jolted into action by the gravity of the economic crisis sweeping across the bloc.
"Everyone realised from the beginning of COVID-19 that we're in the same boat here," he said.
COVID-19 has killed around 135,000 people across the EU and caused authorities to instate lockdowns that paralysed business and threw millions of people out of their jobs. The bloc’s economy is now forecast to shrink by around 8.3 per cent this year.
MEPs want a say
There are nonetheless lingering uncertainties over exactly how the money will be doled out.
"The one area that concerns me is the governance mechanism for the recovery fund, where disbursements will still have to be decided almost by unanimity," said Leipold of the Lisbon Council.
"If there are reservations by any member state, it then goes to the European Council for what they call an ‘exhaustive discussion’. The term exhaustive is a little daunting given the experience we've just had," Leipold said, cautioning against the risk of returning to "a very intergovernmental process" where consensus is hard to reach.
MEPs could also – at least in theory – stand in the way of the final approval of recovery package.
"The European Parliament will be involved and they're going to demand some changes on things that are important to them," said Bruegel’s Christie, adding that some might want to "play hardball" to get their point across.
MEPs want the package to include provisions on the rule of law, which could freeze funding to countries flouting democratic principles. The European Parliament will ultimately have the power to block the deal, its leader David Sassoli warned on Monday.
"Today we've taken a historic step, we all can be proud of," European Commission President Ursula von der Leyen tweeted on Tuesday.
"But other important steps remain. First and most important: to gain the support of the European Parliament. Nobody should take our European Union for granted."