Clashes predicted over trillion-euro Covid-19 aid as EU meets online

European Union leaders are expected to clash over the size and scope of a coronavirus recovery fund as they stand on the precipice of an economic slump unparalleled since the 1930’s Great Depression.

The bloc’s 27 leaders meet in a video-conference summit on Thursday and will debate a variety of trillion-euro proposals to resuscitate the single market, following the global pandemic that so far has claimed more than 108,000 lives in the European Economic Area and UK.

Some European commission officials have suggested a €2tn plan, a combination of loans and grants that relies on raising funds on capital markets and an agreement on the tortured question of the EU’s next seven-year budget. Spain has called for a €1.5tn programme of grants for the worst-hit countries, funded by “perpetual” (non-maturing) bonds, while France wants a special fund outside the EU budget.

Any big-spending plans are likely to face resistance from self-styled “frugal” member states, such as the Netherlands and Austria, who feel the EU has already taken big steps to stave off economic hardship, such as relaxing state aid rules and the European Central Bank’s €750bn bond-buying programme.

Earlier this month EU finance ministers agreed a €540bn rescue package, which leaders are expected to endorse on Thursday. Part of that agreement gives countries the right to borrow from the eurozone bailout fund, the European Stability Mechanism.

But Italy, the country hardest hit by the pandemic, is reluctant to turn to the fund, which critics say stigmatises the borrower, and Spain has said it does not need to. Both countries have called for common EU debt to underpin an EU recovery programme to ensure the worst-affected economies don’t get left behind.

Insiders do not expect the EU’s latest virtual summit – the fourth in seven weeks – to result in a deal on debt-sharing, or loans funded by “perpetual” debt issued by the EU institutions.

“[The word] ‘perpetual’ when it comes together with ‘debt’, that is difficult to swallow for some of our member states,” said a senior EU official. “The difficulty here is that every leader also has a domestic public opinion, which means public opinion and also a parliament. These leaders are ready to go to some efforts, but they have to face their own domestic problems.”

Charles Michel, the European council president, who will chair the meeting, will not ask EU leaders to sign off a formal summit text, in an attempt to avoid hours of rows over a single line in a document, as happened at the previous EU virtual summit.

Senior politicians fear the EU’s unity could fracture if the divide widens between the strongest economies and the weaker ones, which have struggled to emerge from the financial crisis. “The crisis risks damaging permanently the growth potential of member states, which already face bottlenecks to growth,” an internal commission paper, seen by the Guardian, states.

While some officials in the commission envisage a €2tn plan, the number has yet to be signed off by the president of the European commission, Ursula von der Leyen, who will join EU leaders on the call It also relies on a deal on the EU budget for 2021-2027, which is already behind schedule after leaders failed to reach an agreement in February.

The commission is urging EU leaders to agree the budget by June 2020. A second internal commission document envisages a specific €323bn recovery programme to trigger greater investment from the private sector.

Germany, which takes over the EU rotating presidency from July, is backing calls for any recovery plan to be integrated into the next EU budget. “For us, it’s clear that [a recovery package] has to be something that is best handled as part of discussions about the EU budgets in the coming years, in the so-called multiannual financial framework which is soon to be decided upon,” the German finance minister, Olaf Scholz, told German television ARD.

In a less contentious moment, EU leaders are expected to sign off guidance from Brussels on lifting the lockdown. The commission, urging caution, has set out three criteria for judging how and when to end restrictions: stable and significant decline in the spread of the disease, health system capacity, and availability of widespread testing and tracing systems to monitor future outbreaks.

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