BRUSSELS — After nearly five days of intense haggling, European Union leaders stepped up Tuesday to confront one of the gravest challenges in the bloc’s history, agreeing to a landmark spending package to rescue their economies from the ravages of the coronavirus pandemic.
The 750 billion euro ($857 billion) stimulus agreement, spearheaded by Chancellor Angela Merkel of Germany and President Emmanuel Macron of France, sent a strong signal of solidarity even as it exposed deep new fault lines in a bloc reshaped by Britain’s exit.
The deal was notable for its firsts: European countries will raise large sums by selling bonds collectively, rather than individually; and much of that money will be distributed to the hardest-hit nations as grants with no repayment needed — not as loans that would swell their national debts.
Those extraordinary steps reflected a difficult consensus among members: that the scale of the crisis facing the world’s biggest bloc of nations required groundbreaking measures to ensure its legitimacy, stability and prosperity.
“Europe has shown it is able to break new ground in a special situation. Exceptional situations require exceptional measures,” Merkel said in a news conference at dawn. “A very special construct of 27 countries of different backgrounds is actually able to act together, and it has proven it.”
But the negotiations in Brussels — the EU’s longest summit meeting in 20 years — were notable for their exceptional rancor. And the compromises that allowed Merkel, whose country holds the EU’s rotating presidency, to guide 27 nations toward consensus became all the more apparent, and none were too pretty.
Merkel needed to bridge fissures that ran up, down and sideways. There were divides between the frugal north and a needy, hard-hit south; but they also split west and east, between Brussels and budding autocracies like Poland and Hungary that have tested the limits of the bloc’s democratic values.
The compromise that got the most attention was between Macron of France, who pushed for large-scale grants to southern European countries like Italy and Spain hit hardest by the pandemic, and Prime Minister Mark Rutte of the Netherlands, who pressed for more loans and structured reforms.
But it was how Merkel mollified the prime ministers of Hungary and Poland, Viktor Orban and Mateusz Morawiecki, that may prove more consequential.
Not only was their money from Brussels increased, despite regular questions about the misuse of those funds and efforts to condition the aid on adherence to the rule of law, but Merkel promised to help resolve disciplinary measures against their countries for anti-democratic behavior.
Critics denounced what they saw as a dangerous capitulation that could foreshadow further testing of EU principles. The concessions to Hungary and Poland also could face new challenges because the package must be approved by the European Parliament.
The agreement “looks like a disaster for the rule of law,” said R. Daniel Kelemen, a scholar of Europe at Rutgers University. “Merkel and Macron were determined to reach a deal demonstrating the EU’s ability to respond to the crisis, and they proved willing to keep EU funds flowing to autocratic governments in order to close the deal.”
As the weekend wore on, however, the talks grew heated, the diplomatic gloves came off, and so did the masks.
The talks were defined by shifting roles among members now jostling to make their voices heard and for leadership in the absence of Britain, which had often played the part of the thrifty contrarian, fastidious about rules, in past summits.
This time, Merkel, unusually for a German leader, put her finger on the scale on behalf of hard-hit southern countries and battled the nations she once had championed, the northern members that have been less affected by the virus and are wary of the vast sums being thrown around.
Where Friday’s meeting was marked by joyful greetings and even celebrations of the birthdays of two leaders — Merkel, now 66, and Prime Minister Antonio Costa of Portugal, who turned 59 — Sunday night’s dinner (a “cold dish” after several sumptuous meals, socially spaced but unmasked) was marked by shouting matches.
Macron, for example, yelled at Chancellor Sebastian Kurz of Austria for not only being a tightfisted impediment but for leaving the room to take a call. To some leaders’ shock, the French president slapped the table. Kurz attributed Macron’s temper tantrum to sleep deprivation, diplomats said.
As that meeting broke up without a deal around 6 a.m. Monday, Rutte, the Dutch prime minister, told his country’s media that he didn’t care if other leaders mockingly called him “Mr. No” for blocking the agreement. (They did.)
“We’re here because everyone is taking care of their own country, not to go to each other’s birthdays for the rest of our lives,” he said bluntly.
It was Rutte who stepped into the vacuum left by Germany’s shift and Britain’s departure to lead the so-called Frugal Four: the Netherlands, Austria, Sweden and Denmark. Occasionally, the “frugals” became five with the support of Finland.
In the end, with a unanimous decision needed for a plan, a bitter compromise prevailed. The overall figure of 750 billion euros remained, but an original proposal to offer 500 billion euros of that in the form of grants was trimmed to 390 billion euros, with 360 billion euros earmarked for loans.
Besides raising cash and extending grants, the package will increase lending and deploy other, more traditional stimulus methods to reverse the economic free-fall that threatens the EU’s stability.
Economists predict a recession far worse than anything since World War II. France, Italy and Spain, the bloc’s second-, third- and fourth-largest economies, are expected to suffer the most, clocking in contractions of around 10% this year.
Greece and other smaller economies that are still recovering from the last recession will also be badly affected by the downturn. But heavy debt loads in many of these nations make them reluctant to amass yet more debt, and their budgets aren’t sufficient to self-fund their recoveries. That led them to turn to the European Union for help.
Together with the vast bond-buying program by the European Central Bank, national stimulus plans worth trillions of euros, and other, smaller EU support schemes for banks, businesses and workers, European leaders hope to reverse the recession in 2021 and spend their way into a rapid and powerful recovery.
They also agreed on Tuesday on the bloc’s regular budget for the next seven years: 1.1 trillion euros to finance the normal EU policies on agriculture, migration and hundreds of other programs.
But to gain the approval of Hungary and Poland, EU leaders watered down the caveat making funding conditional on the rule-of-law benchmarks that the two countries’ illiberal governments are violating.
In another concession to Poland, the bloc’s most coal-dependent nation, a requirement was dropped that would have committed the country to carbon neutrality by 2050 to draw on parts of the funds.Since its inception, the EU has struggled between maintaining nation-state sovereignty and developing joint federal-style structures.
The deal reached on Tuesday is significant in that more creditworthy EU nations will be underwriting loans to fund the recoveries of countries that would otherwise face onerous borrowing costs.
The Netherlands and Austria were hostile to the very idea of borrowing money and simply giving much of it to benefit mostly southern, weaker economies.
Under significant pressure at home as elections approach in March, Rutte advocated loudly for fewer handouts to those nations, among them Italy and Spain, that have been hardest hit by the pandemic but that also have structurally weak economies.
The Netherlands and other countries with healthier public finances are concerned that the commonly funded aid would simply go into a bottomless pit of spending — one that doesn’t truly help those economies without reforms to reduce bureaucracy, create jobs and stimulate growth.
A key argument in favor of offering grants rather than loans has been that Italy and other countries likely to take the aid are already over-indebted, and piling on yet more loans would just worsen their positions.
Rutte fought successfully for bigger-than-usual rebates, or reimbursements, for his own and other nations that are net contributors to the EU budget.
He and the others extracted another concession: Any country that wishes to use the new funds must submit a plan for how it intends to spend the money. The other EU nations will have an opportunity to review and object to the plan within three days of its submission and demand that it be tweaked.
Still, that mechanism fell short of the outright veto that Rutte had demanded, which the Italian and Spanish leaders denounced as an unacceptable encroachment into their authority.
The package will go to the European Parliament for ratification, and is expected to face a serious challenge on the grounds that it does not tackle concerns about how Poland and Hungary’s governments violate the bloc’s standards for democracy and the rule of law.