July 16, 2020 / 10:25 AM / 19 days ago

EU pushes for deal on mass economic stimulus though gaps remain

WARSAW/BRUSSELS, July 16 (Reuters) - EU countries nudged towards an agreement on a mass stimulus scheme to kickstart economies hammered by the coronavirus but disagreements persisted over the scale and access to funds before Friday’s summit.

The 27 national EU heads will meet face-to-face for the first time since COVID-19 pushed Europe into a sweeping lockdown. They will haggle over their next budget proposed at 1.074 trillion euros ($1.22 trillion) for 2021-27 and an attached recovery fund of 750 billion euros in grants and loans.

The Netherlands, Denmark, Sweden, Finland and Austria - the wealthy but thrifty net contributors to the bloc’s joint coffers - want to lower the scale of funding, favour loans over grants for their southern peers hit harder by the pandemic and demand economic reforms as preconditions for accessing the money.

Differences also linger over procedures to assess and approve, or reject, applications for handouts from the 750 billion new fund as well as framing conditions on respecting democratic values and fighting climate change to win aid.

“Rationally speaking, a deal is possible, but summits are not always rational,” said one senior EU diplomat ahead of the talks planned for Friday and Saturday.

“The only thing that the frugals have not entirely accepted is the grants and loans split... they want to reduce the amounts, as well as insist on issues of governance, rebates, the overall balance.”

European Council President Charles Michel, who will host the Brussels talks, has put forward a compromise plan that goes some way to assuaging the concerns of the frugal camp, weary of bankrolling peers they see as fiscally reckless and wanting to keep their EU budget reductions.

Hungary, where Prime Minister Viktor Orban has tightened the noose around academics, media and civil society, pushed back against new mechanisms that would allow the freezing of funds for countries undercutting the rule of law, a point of principle for the wealthy net payers.

Eyes are also on German Chancellor Angela Merkel, standing at the helm of the biggest EU economy, who has thrown her weight behind pushing for a deal despite gaps needing to be bridged.

The coronavirus has come as the latest existential challenge to the EU, which has lurched from one crisis to another in recent years, from the financial meltdown that started more than a decade ago to a spike in uncontrolled immigration and then Brexit.

Bickering between member states over money, medical supplies and border closures exposed divisions in the world’s largest trading bloc though it has since managed to agree on half a trillion euros of immediate economic relief.

“It is possible to have an agreement this weekend and it is desirable,” a French presidency source said. “There is an expectation for a European solution.”

ING said in a note this week that a deal seemed within reach: “A deal now would be huge, but any sign of further progress on the remaining contested issues would also still be positive.” ($1 = 0.8781 euros) (Reporting by Gabriela Baczynska, Robin Emmot, Elizabeth Pinneau, Andreas Rinke, Writing by Gabriela Baczynska, Editing by Nick Macfie)

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