Opposition to Joint EU Debt Issuance Eases Amid Cashback Demands

(Bloomberg) -- Opposition to a jointly financed 750 billion-euro ($850 billion) European Union recovery plan is easing from Copenhagen to Vienna, as richer governments signal their willingness to compromise so long as they secure financial concessions in return.

Denmark is still skeptical about the subsidy component in the package proposed by the EU’s executive arm last month, but its main priority is maintaining its rebate in the EU’s next seven-year budget, according to a negotiating mandate sent to the Danish Parliament and released on Tuesday afternoon. Austria said that a similar arrangement might persuade it to back the plan too.

Opposition to Joint EU Debt Issuance Eases Amid Cashback Demands

Danish ministers have previously insisted that any support to the EU members worst-hit by the virus-induced recession must come in the form of concessionary loans, rather than grants to be jointly repaid in the decades ahead from the EU’s joint budget. Now the administration says it will be satisfied with seeing them reduced.

Asked about the strength of her opposition by lawmakers, Prime Minister Mette Frederiksen said she would “generally warn against negotiating something as important as Europe’s future with a view to veto.”

The softer language from Denmark is a sign of cracks emerging in a four-way alliance that has been trying to tighten the terms and restrict the amount of money the EU puts down to help countries like Italy, Spain and Greece that have been hardest hit by the pandemic.

In addition to the 750 billion-euro recovery fund, EU governments seek agreement over a 1 trillion-euro budget, which is mainly used for farming subsidies and infrastructure projects in the 27-nation-bloc. Unanimous support is needed for the whole package, in talks which are expected to drag into July or later.

Austria, another opponent of the EU plan alongside the Netherlands and Sweden, also signaled that a cashback from the EU budget may be the route to a deal. “There needs to be a reduction or at least compensation for the biggest net donors,” the finance ministry said in a statement on Wednesday.

Discussions have so far centered on whether emergency funds to member states should come in form of grants or loans. While the European Commission suggested as much as 500 billion euros in grants and 250 billion euros in concessional loans, budget hardliners have called for fewer handouts and more conditions to ensure that funds will be used in an effective way.

The bloc is a long way from unanimity, with eastern EU members opposing the channeling of emergency grants to the South and all of the poorer countries expected to resist demands for rebates from the regular EU budget in exchange for support for the recovery fund.

A potential accord over the entire package would mark a watershed moment in the European unification process, as it would be the first time the bloc would partially finance its growth strategy via joint debt issuance. The recovery funds would also mark a significant upgrade of direct fiscal transfers from richer to poorer EU members, and potentially lower the risk of fragmentation in the EU’s vast single market.

EU finance ministers will debate the plans for second time this week on Thursday, while leaders are expected to take over negotiations on June 19. German Finance Minister Olaf Scholz said he expects an agreement “within a short time.”

©2020 Bloomberg L.P.

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