Merkel warns of large obstacles to EU summit deal

EU leaders face an uphill task bridging big divisions over Europe’s €750bn pandemic recovery response this weekend, the German chancellor has warned ahead of a showdown summit in Brussels on Friday. 

Speaking as she entered the first physical summit of European leaders since February, Angela Merkel, who holds the rotating presidency of the EU, said: “The differences are still very large and so I can’t predict that we will achieve a result this time. It would be desirable, but we also have to be realistic.” 

Ms Merkel, along with France’s president Emmanuel Macron, has backed EU plans to borrow hundreds of billions of euros to fund Europe’s recovery from the pandemic. But fundamental questions about how the money is distributed and the conditions attached still need to be settled by EU leaders, who have been at loggerheads for nearly two months.

Ms Merkel urged her colleagues to show “willingness to compromise on the part of everyone so that we achieve something that is good for Europe” at the summit, which will be chaired by European Council president Charles Michel. “I expect very, very difficult negotiations. Germany will weigh in, together with France of course, to assist [Mr] Michel,” she said.

The sheer number of divisive issues has led to increasing pessimism among diplomats about the chances of striking a deal this weekend, raising the prospect of another summit in Brussels before the end of the month. Mark Rutte, Dutch prime minister, said on Friday morning that there was a “less than 50 per cent chance” of an agreement this weekend.

“It is important that there is an agreement, but it must be a good agreement,” said Mr Rutte, who is one of the leaders demanding sweeping changes to current draft plans for a recovery fund and the EU’s next long-term budget, which is due to start next year.

One of the biggest sticking points is the management of a recovery instrument worth €560bn that is designed to hand out grants and loans to crisis-hit economies. Mr Rutte is demanding a veto over approving the disbursing of cash — a demand that has met fierce resistance in southern capitals. 

The Netherlands, along with a “frugal” alliance of Austria, Denmark and Sweden, has also demanded no grants from the fund, and wants to reduce the overall size of a €750bn “Next Generation EU” package as its price for reaching a deal.

Leaders are also expected to clash over how to tie recovery money to respect for the rule of law. Hungary’s illiberal premier Viktor Orban has threatened to veto a deal that makes respect for fundamental values a precondition of the recovery fund. Western European capitals are demanding tougher cash sanctions for member states such as Poland and Hungary that are accused of undermining the independent judiciary and freedom of the press.

Other outstanding issues include the methodology used to allocate money to countries hit by the pandemic, and the question of whether member states will need to sign up to the EU’s ambitious climate goals to receive the aid. Poland, which is one of the biggest recipients of the recovery package, is the only country not to formally back Europe’s 2050 climate neutrality target.

Speaking as he arrived at the summit, Mr Michel said he expected a “very difficult negotiation” and called for “political courage” from his fellow leaders. “I know that it will be very difficult because it is not only about money, it is about people, about our European future, about our unity.”

In a sign of the complex web of interests at stake, Andrej Babis, the Czech prime minister, warned that the criteria proposed for allocating recovery money discriminated against his country because of its low unemployment and strong economic fundamentals before the pandemic struck.

“It is not possible to penalise the successful countries because they were successful,” he said, while criticising plans to allow several richer EU countries to keep lucrative budget rebates. 

But leaders of countries that have borne the brunt of the suffering urged the bloc to show its ability to unite, saying what was at stake was the ability of the European project to point the way to a brighter future.

Giuseppe Conte, Italy’s prime minister, said that the negotiation was about more than “financial flows”.

“We are elaborating a response, an economic and social response, to all our European citizens in the common interest of the values that we share,” he added.