Brussels pressed to overhaul Covid-19 recovery plan

Ursula von der Leyen, the European Commission president, is under pressure from EU governments to overhaul the way Brussels wants to divide up the proceeds of the bloc’s multibillion-euro recovery fund as leaders aired their complaints during an inconclusive video summit.

Leaders from Austria, Sweden, the Netherlands, Belgium and Ireland demanded changes on Friday to the “allocation key” that will decide how €310bn of borrowed EU money is distributed to countries suffering the worst economic effects of the coronavirus crisis.

The criticisms were made as leaders held their first detailed discussions on an EU recovery plan worth €750bn in total, in a four-and-a-half hour virtual summit that exposed divisions on a number of fronts. 

Critics of the commission’s criteria argue Brussels is using “outdated” measures of unemployment to determine how much each member state will receive. However, Ms von der Leyen mounted a staunch defence of the plans and said Brussels had found a good way of assessing countries’ vulnerability to the crisis. 

EU leaders are braced for weeks of tough negotiations over the major elements of the recovery plan, which forms the centrepiece of the EU’s collective economic response to the pandemic. Speaking after the summit, Angela Merkel, the German chancellor, urged member states to strike a “swift agreement” as she warned that the EU was facing its biggest ever economic challenge triggered by the pandemic. 

But the summit laid bare a host of unresolved issues that will need to be resolved if a consensus is to be struck this summer. Member states not only haggled over how the money is parcelled out — there were also differences on the size of the recovery fund, the balance between grants and loans, and the fate of so-called rebates that some northern countries get on their budget contributions. 

German chancellor Angela Merkel urged EU member states to strike a ‘swift agreement’ on the bloc’s recovery plan © Christian Marquard/EPA/Shutterstock

In addition, many EU members have bridled as Brussels asks them to consider handing over new revenue streams to the commission, which would allow it to repay the hundreds of billions of euros it would borrow to fund the package. 

The commission’s allocation criteria for its proposed Recovery and Resilience Facility, which comprises €310bn in grants, use three main economic measures: a country’s population, its gross domestic product per capita, and a five-year average rate of unemployment between 2015-2019.

Estimates of the biggest recipients under the scheme show that countries badly hit by the virus like Spain and Italy will receive a large proportion of the aid. But other member states who have done comparatively better in managing the crisis — such as Croatia, Romania and Hungary — also stand to benefit more than some of those in western Europe. 

Speaking to reporters after the summit, the commission president said the unemployment measure was an appropriate proxy for the impact of the pandemic because it highlighted which economies entered crisis in the weakest position to withstand the shutdown in activity since March. “This is very well represented in the unemployment rate over the last years,” said Ms von der Leyen.

She insisted that the commission had examined allocations using more recent economic criteria and this made no significant difference to how the funds would be shared out. “Many variables are strictly linked to the crisis phenomenon,” Ms von der Leyen said.

Dutch prime minister Mark Rutte, a critic of the distribution key, said Ms von der Leyen has not convinced sceptics of the merits of the allocation criteria. He has demanded an update of the commission’s assessment of the economic impact and wants a country-by-country breakdown of who gets what next month.

“We will need a different set of Covid-19 criteria,” said Mr Rutte. “I find it difficult that unemployment is being used. We should use statistics from this crisis and not the past measures,” he told reporters after the summit.

Leo Varadkar, the Irish prime minister, wrote on Twitter before the summit that he would be arguing for changes to the financial package to make sure it more fairly reflects the “severe impact” of the crisis on Ireland’s economy. Ireland and Belgium are worried not only about the economic hit from Covid-19, but also the follow-on impact of a possible hard Brexit at the end of the UK’s transition period in December.