EU leaders meet to thrash out coronavirus recovery package

·Germany Correspondent, Yahoo Finance UK
·2 min read
German Chancellor Angela Merkel prepares to remove her protective face mask prior to deliver a speech  as she arrives for a European Union Council in Brussels on July 17, 2020, as the leaders of the European Union hold their first face-to-face summit over a post-virus economic rescue plan. - The EU has been plunged into a historic economic crunch by the coronavirus crisis, and EU officials have drawn up plans for a huge stimulus package to lead their countries out of lockdown. (Photo by Francisco Seco / POOL / AFP) (Photo by FRANCISCO SECO/POOL/AFP via Getty Images)
German Chancellor Angela Merkel prepares to deliver a speech. Photo: Francisco Seco /AFP via Getty Images

Leaders of the European Union converged on Brussels on Friday for a two-day summit to try and reach an agreement on a €750bn (£680bn, $854bn) coronavirus recovery fund, as well as negotiate the EU’s €1 trillion seven-year budget.

It is the first time leaders of the 27 member states have met in person since the coronavirus pandemic brought the bloc to a standstill and made travel and large meetings impossible.

While the high-stakes meeting with be mediated by European Council president Charles Michel, German chancellor Angela Merkel is also expected to deploy her dogged negotiating skills to help build consensus between leaders currently at odds over the size and conditions of the recovery package.

Merkel said this week that the rescue package must be “massive” and should not be shrunk down. While time is off the essence, Merkel said she wasn’t sure that an agreement could be reached at this weekend’s meeting as “bridges still need to be built” between member states.

Shepherding the EU through the economic wreckage of the pandemic and ensuring the single market stays strong is a top priority for Germany, which took over the EU Council presidency at the beginning of July.

READ MORE: Brexit deal and coronavirus recovery dominate Germany's EU presidency

What’s at stake?

The focus of the summit will be the proposal for the €750bn coronavirus recovery package that is currently on the table.

Merkel has joined forces with French president Emmanuel Macron to push for member states to agree to borrowing jointly to finance the package of grants and loans.

Currently, €500bn is earmarked for non-repayable grants to be issued via a new Recover and Resilience Facility to countries in need, as well as for grants to programs such as research and green initiatives.

The so-called “Frugal Four,” of Austria, the Netherlands, Sweden, and Denmark are staunchly opposed to debt mutualisation, and may demand that the grants portion of the package be reduced or subject to stricter approvals.

READ MORE: Coronavirus to cause deeper recession than expected in EU

The European Commission issued a revised forecast for the EU economy earlier this month. It now expects that the euro-area economy to shrink by 8.7% in 2020, versus the 7.7% GDP contraction it forecast earlier this year.

The Spanish, French, Italian and Croatian economies are expected to contract by over 10% each.

"The economic consequences of the lockdown are more serious than we originally thought," EU Commission vice president Valdis Dombrovskis said.

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