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E.U. Adopts Groundbreaking Stimulus to Fight Coronavirus Recession

2020-07-21 03:57:29
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BRUSSELS — After nearly five days of intense haggling, European Union leaders on Tuesday stepped up to confront one of the gravest challenges in the bloc’s history and agreed to a landmark spending package to rescue their economies from the ravages of the 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 the British 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 handed out to member nations hardest hit by the pandemic as grants that do not have to be repaid, and not as loans that would swell their national debts.

Those extraordinary steps reflected a difficult consensus arrived at by members that the scale of crisis facing them required groundbreaking measures to ensure the bloc’s legitimacy, stability and prosperity. But the lengthy negotiations in Brussels were notable, too, for their exceptional rancor — and it was clear that the pooling of resources and sovereignty had come at a cost.

A strange kind of political theater, never visited upon European Union summits before, marked the meeting — with leaders donning masks and bumping elbows to greet. They were safely spaced in a vast hall, their entourages trimmed to only the most essential members.

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, Ms. Merkel, unusually for a German leader, and holding the E.U.’s rotating presidency, put her finger on the scale on behalf of hard-hit southern countries and did battle with the nations she once 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 — Ms. 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 and a nasty atmosphere.

Mr. Macron, for example, yelled at Chancellor Sebastian Kurz of Austria for not only being a tightfisted impediment to the rescue deal but also for leaving the room to take a call. To some leaders’ shock, the French president slapped the table. Mr. Kurz tried to keep his cool, and in a zinger put Mr. Macron’s temper tantrum down to sleep deprivation, diplomats said.

As that meeting broke up without a deal around 6 a.m. Monday, Mark 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 Mr. Rutte who stepped into the vacuum left by Germany’s shift and Britain’s departure to lead the so-called Frugal Four, which include his nation as well as Austria, Sweden and Denmark. Occasionally, the “frugals” became five with the support of Finland.

In the end, with a unanimous decision by the 27 nations needed for a plan to go forward, a bitter compromise prevailed. The ambitious plan pushed by Ms. Merkel and Mr. Macron was watered down, but remained significant. The overall figure of €750 billion remained, but an original proposal to offer €500 billion of that in the form of grants was trimmed back to €390 billion, with €360 billion earmarked for loans.

In addition to raising cash and extending grants, the package will increase lending and deploy other, more traditional stimulus methods to arrest and reverse the economic free-fall that threatens the stability of the world’s richest bloc of nations.

Under significant pressure at home as elections approach next March, the Dutch prime minister, Mr. 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, unreformed economies.

The Netherlands and other wealthier nations with healthier public finances are concerned that the commonly funded aid would simply go into a bottomless pit of spending that doesn’t truly help these economies recover without changes to make it easier 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.

Mr. Rutte fought successfully for bigger-than-usual rebates, or reimbursements, for his own and other nations that are net contributors to the E.U. budget.

He and the others succeeded in wringing out another concession: Any country that wishes to use the new funds will need to submit a plan for how it intends to spend the money. The other E.U. nations will have a chance 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 Mr. 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.

Monika Pronczuk contributed reporting.

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