Germany Says Budget Perks Could Break Recovery Package Deadlock

(Bloomberg) -- Germany’s finance minister said that countries opposed to the European Union’s proposed 750 billion-euro ($848 billion) recovery package could be offered a discount in their dues to the bloc as a way to build support for the contentious project.

“This could also be the basis for finding a consensus,” Olaf Scholz said at a press conference in Berlin on Friday when asked if rebates to what nations pay into the EU’s seven-year budget could be used to sway the holdouts.

Denmark, the Netherlands and Sweden, which have voiced strong opposition to the extraordinary EU plan to issue common debt to fight the economic effects of the pandemic, received reductions in their contributions to the 2014-2020 budget of 130 million euros, 695 million euros and 185 million euros, respectively. Those rebates wouldn’t necessarily carry over into the next budget, which still needs to be finalized.

The Danish government’s negotiation mandate indicated that their top priority in the upcoming talks on the EU plan will be to maintain their budget rebate and that the other concerns were secondary.

The EU’s 27 leaders will hold a video conference on June 19 to debate the proposal for the first time. The plan would make as much as 500 billion euros in grants and 250 billion euros in concessional loans available to the member states most affected by a pandemic-induced recession.

Germany Says Budget Perks Could Break Recovery Package Deadlock

The program, which needs to win the backing of every capital, would be funded by joint debt issuance in a significant step toward closer economic integration.

Those against the plan have criticized its size, the amount of grants included as opposed to loans and the amount of conditions tied to disbursements. But some opposition has been waning.

Hungarian Prime Minister Viktor Orban said that he’s come around to support the plan but that there’s still work to do to agree on its fair distribution.

Although the idea of taking on joint debt is “completely antithetical to the Hungarian way of thinking,” the EU must act, in particular to help out some southern members whose debt loads threaten to overwhelm them in the wake of the coronavirus crisis, Orban said in a state radio interview on Friday.

Finnish Reservations

“I have to concede, even if I shudder at the thought of it, that this once, exceptionally, we have to use this tool,” Orban said. “But the money must be distributed fairly. You can’t swindle central Europe, we’re no fools.”

He said the leaders of the Visegrad countries, which also include the Czech Republic, Poland and Slovakia, agreed on a joint position on the EU recovery fund at a meeting on Thursday.

Finland’s parliament on Friday underscored reservations already voiced by the government on the share of grants versus loans in the proposed recovery fund. The Constitutional Committee highlighted certain potential constitutional hurdles, but the Grand Committee, which sets Finland’s negotiating stance, signaled those could be overcome with changes to the EU proposal.

The contentious nature of the deliberations means they may not be immediately wrapped up.

“This will keep us busy for some time,” Scholz said. “But when the summer is over, we should be done.”

©2020 Bloomberg L.P.

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