EU Leaders Poised to Unlock Budget, Stimulus Deal at Key Summit

(Bloomberg) -- European Union leaders gathering in Brussels are expected to sign off on the bloc’s landmark $2.2 trillion stimulus package after a compromise struck with Poland and Hungary was set to unblock the flow of rescue funds to the continent’s battered economies.

The governments in Warsaw and Budapest vehemently opposed making funding conditioned on rule-of-law standards, and threatened to torpedo the EU’s 750 billion-euro pandemic aid fund and the 2021-2027 budget. But after long negotiations with Germany, which holds the bloc’s rotating presidency, they agreed on a statement clarifying the way the link would work.

“Germany, and also me personally and my team, have worked very intensely to overcome the differences which we have had and to find a solution for the concerns of Hungary and Poland,” German Chancellor Angela Merkel told reporters in Brussels on Thursday. She added that they worked to “keep the conditionality mechanism and the rule of law intact in a way which we have agreed with the EU Parliament.”

The leaders will still need to give their approval to the proposed solution, which will also need the consent of European lawmakers. But some expressed optimism before the summit began.

“We still have some important concerns,” Belgian Prime Minister Alexander De Croo said. ‘I think we can get an agreement on the budget and recovery fund.”

The compromise still ties disbursements from the package to democratic standards, though such sanctions can’t be triggered before the European Court of Justice has ruled on the legality of the new rules, a process that could take more than a year to complete.

EU leaders are expected to back a statement in which they reassure that any cuts in the flow of funds will be linked to rule-of-law breaches that affect the financial interests of the EU, such as failure to prosecute government corruption. This was already the case under the agreed rules, despite claims in Poland and Hungary that the deal would force them to bow to unrelated demands such as legalizing gay weddings and accepting immigrants.

“There’s no compromise on the content, no compromise on the text,” Swedish Prime Minister Stefan Lovfen said. “We declared things we needed to declare.”

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