The summit of the summits starts and these are the 10 blocks of European discord

• Reconstruction. The European shock complicates the budget plan: the Treasury slows the spending ceiling by not knowing how much the EU will give
• Taxes: Brussels puts more pressure on the European summit by stoking the debate on the tax gap between countries

Normally, the European Councils (EUCO), the meeting of the heads of state and government of the 27, have three elements in common: the agenda is loaded with issues, the hours are more or less closed (you never know if they will stay all night, awake, but they will end the next day at noon) and all the delegations, European institutions and diplomats offer the best face, are overly optimistic and assure that there will be an agreement and that it will be good. Unfortunately, the EUCO that starts today Friday at 10:00 in the morning has nothing to do with the usual ones: there is only one topic on the agenda, nobody has the slightest idea of ​​how many days it can last and, above all, the message that goes from north to south and from east to west is cautious pessimism, for being generous. "We are not there yet. The agreement is not guaranteed, on the contrary. There are still important differences and there are many bridges to build," said a senior European source yesterday, fully involved in the details of the meeting.

In the past, on at least the last three occasions, European leaders had to lock themselves up to three days to be able to close the negotiation of the Multiannual Financial Framework, the EU Budget, the next duration of which runs until 2027. In February, before the virus They tried, but after two very intense days, they surrendered to the evidence. Now, to the second, it will be infinitely more complicated, because to the Budget, of more than a trillion euros, is added a Recovery Fund (NextGeneration EU) of up to 750,000 million euros, Brexit, the transition to an economy green or the problems of Hungary and Poland with compliance with the rule of law. A non-lethal combo, but almost.

Last week, the President of the European Council, Charles Michel, put on the table what is known as NegoBox , a negotiation offer with specific figures after listening to the complaints and requests of the 27 capitals. The positive part is that nobody has made an amendment to the totality and the negative, that everyone is somewhat or very unhappy. The pessimists say that with so many dishes on the menu the understanding is a pipe dream, but the optimists emphasize that, precisely, having so many blocks, haggling is easier , or at least allows a lot of play.

The only certainty is that for there to be an agreement (and there has to be, now, next week, in September or later), everyone will have to give in. All theses are irreconcilable, because some want a large size and another small; some ask for strict conditionality and others that there is not. Net taxpayers want compensatory checks, and the rest are strongly opposed. No one, absolutely no one, will come out with everything they ask for, and therefore the opposite is the goal: that even those who may be hardest hit agree to swallow a few toads.

They will start on Friday morning at 10:00 and the objective of Charles Michel is for them to spend the day negotiating, but that at a prudent hour of the night the leaders retire to their hotels and that their sherpas and ambassadors stay up all morning. standing if necessary, to continue in the morning. If there was hope, enough progress was made, there could be an agreement on Saturday or even Sunday. If it were not enough (and that is what the majority thinks now), but with a little more work it could take hold (the same happened in July 2019) perhaps the European Council could be suspended for 24 or 48 hours for reflections and bilateral meetings . Or, perhaps, stop for up to a week to allow time for calculations and queries. In the worst case scenario, they could give up and come back in August or after the vacation break.

The friction points are innumerable, but the 10 blocks of discord, the great obstacles to an agreement, are these.

The size of the budget

The 2014-2020 Financial Framework (MMF) amounted to 1,082 billion euros, 1.16% of European income. The President of the European Council, Charles Michel, has proposed that the Multiannual Financial Framework 2021-2027 should remain at 1,074 billion euros . The Commission's first proposal, almost two years ago, was 1.1 trillion (due to Brexit), which already represented only 1.11% of the EU's gross income. But some net taxpayers demanded that it be less. In February, taking over the negotiation, Michel suggested an MMF of 1.094 trillion, but that was still just 1.07% of community income. Frugal people, like the Netherlands, Austria, Denmark and Sweden, do not want the Budget to be more than 1% of the European gross income. And today the leaders will look for a middle ground. They are barely hundredths, but each one is billions of euros.

Agriculture and cohesion

Although the big losers of the next European Budget will be the Common Agricultural Policy and Cohesion (because they are the two great items and historically two out of every three euros are distributed), in addition to humanitarian aid, very little is being said about it. Eyes are on games of recovery from the pandemic, but in the negotiation this weekend there will be violent clashes. Spain or France will fight to try not to cut cuts of up to 14% or 17% respectively. It is a difficult task, because there is a certain consensus on the need to modernize the European economy, and that, although it may irritate Madrid or Paris, requires more resources for digitization and green transition. The importance of the CAP and Cohesion in the future is not negligible, but with so many open fronts, they can be a collateral victim.

The 'rebates'

The compensatory checks or rebates have their origin in the famous British check that Margaret Thatcher obtained in 1984 at Fontainebleau. The United Kingdom, argued the Iron Lady, contributed too much to the European budget, especially since it hardly benefited from Cohesion and the CAP, which still account for almost two thirds of all spending today. Since then, she has always received compensation of almost two thirds of the balance between her contributions and what she received directly. Austria, Sweden, Denmark, the Netherlands and Germany also receive partial checks (on their contributions or VAT, for example) and refuse to give them up. In Michel's proposal, checks are kept in exchange for the Budget not being too thin , a difficult digestion for most members and the institutions that detest them. Denmark would receive a correction of € 197 million; Germany, one of 3,671 million. Netherlands, just over 1,500 million. Austria, 237 million and Sweden, just under 800.

The recovery fund

The Recovery Package (its main part, NextGeneration EU, is the Recovery Fund outlined by the European Commission in tune with France and Germany and defended by Charles Michel) would have a size of 750,000 million euros, of which up to 500,000 million would be transfers . Frugal countries want to reduce it as much as possible. The figure is not fixed, and some have bet that it could be reduced by around 10%, but Spain, Italy, Portugal or France will fight to maintain a firepower that they consider the minimum acceptable.

Loans and / or transfers

The aforementioned recovery package is based on the idea of ​​transfers, so that the most affected and indebted countries do not end up with unsustainable thresholds. The Prime Ministers of the Netherlands or Sweden have told Pedro Sánchez this week that they still think that a sufficient and appropriate way to help is through loans on favorable terms, and they do not want direct transfers that will not be returned . For a matter of moral hazard and because the debt of its citizens will inevitably rise. The frugal fight to change the composition, and it is possible that they could manage to alter the proportion, but in Brussels today no one doubts that an important part of the result will include transfers.

Distribution key

One of the most interesting and difficult technical discussions has to do with the distribution key, the criteria to define how much corresponds to each country. The European Commission set a formula that takes into account per capita income or unemployment since 2015, in addition to the effects of the virus. And according to his calculations, Spain could receive up to 77,324 million euros in transfers and 63,122 in loans, for a total of 140,446 million , 11% of the national GDP. It would be the second highest amount after the 172,745 million available for Italy. However, that formula does not satisfy everyone, because it does not exactly compensate for the effects of the pandemic and confinement. For this reason, Michel has proposed that 70% of the money approved be distributed according to these criteria, but the additional 30% be done with a new calculation, in 2022, considering only the real effect of the recession on the GDP of each state. .

Conditionality

The conditionality part is probably one of the hottest right now or the hottest part. The more austere ones assume that there will be a notable Budget in size and with transfers, but the bigger both are, the more control they want to have. Its strategy is to press for the Council (the governments themselves through the ministers) to have the last word on the National Reform Plans that each country will have to send in order to access European funds for recovery. And they want ministers to pronounce on them unanimously. They would not be the ones to examine them, there will not be a Dutch official looking at the Spanish reforms. But they want the Commission to do what it has to do. "We have a problem with the Commission and the Stability Pact in the past. It does not apply to all states in the same way. That is our problem, not with specific countries, but with who should be the arbitrator and treat everyone for the same ", explain Dutch diplomatic sources. So they want to push. The formula proposed by Michel is that it be decided by a qualified majority (with which the small or austere would not have the ability to vote without one of the greats of the Eurozone). Spain would accept a qualified reverse majority (which would make the frugal veto almost impossible) . But these days there is talk of variants like supermajorities. Much of the shock in Brussels will be because of what they call the 'governance' of the Recovery Fund.

Reforms and disbursements

To receive European funds there will be two phases: submit the aforementioned National Reform Plan, which must be done taking into account the Specific Recommendations that the European Commission makes each year to each country. And then, keep complying. The disbursement is not unconditional, each country must demonstrate that it is making the promised reforms . The frugalists also want to have a voice and vote in this phase, but the proposal that is being debated these days only contemplates that the so-called Economic and Financial Committee of the EU make an advisory report, but not binding. And it would be the Commission that would verify the process and give the green light. Something that in The Hague seems too dangerous, seeing the history of decades of very superficial compliance with these Specific Recommendations. The trap may lie in how much time there is for the money to be disbursed (in theory, two or three years), the formalities to complete and the capacity of a country to absorb such important funds, something that is far from easy.

Repayments

In order to finance the Recovery Plan, the European Commission, which has a Triple A rating , will go to the markets with an unprecedented issue. A significant part of that debt will not go to the balance sheets of the member states, but it has to be paid. The original idea is that it would be done from 2028 onwards , ending at the latest in 2058. And that it would be done in the future directly with the income provided by the EU's own resources (which would grow with a tax on plastics or tolls on carbon emissions, for example). But there are a few countries that are lobbying to start paying earlier, in 2027, so that funds from the Next Budget must be earmarked for this item. The problem is that this would generate a statistical effect that the Commissioner for Budgets, Johannes Hahn, wants to avoid, because it would somehow alter future contributions.

Rule of law

The Nordic countries or even the Netherlands want there to be clear conditionality in the EU Budget, and that only partners that do not have breaches related to the rule of law are eligible for cohesion or structural funds. In the peephole, of course, Hungary and especially Poland , to which the Commission has opened a file under Article 7 of the EU Treaty, the strongest weapon in the arsenal (although ineffective without unanimity) for the violation of separation of powers , political pressure on judges, controversial laws, etc. Warsaw or Budapest threaten the veto if these debates are linked, and since it is essential to have a Budget and Recovery Fund, partners as disparate as Portugal or Germany have already made it clear that they do not see fit to mortgage an agreement to that conditionality. But anger is expected.

According to the criteria of The Trust Project

• Spain
• European Comission
• Sweden
• Germany
• Denmark
• France
• Austria
• Poland
• GDP
• Portugal
• Hungary
• Italy
• UK
• Madrid
• Pedro Sánchez
• Paris
• Unemployment

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