Leaders from EU member states will meet in Brussels on Friday and Saturday to discuss the EU's multiannual financial framework and recovery fund. The purpose of the fund is to help member states cope with the economic damage caused by the coronavirus and thereby revitalize the EU's internal market. Finland will be represented at the negotiations by Prime Minister Sanna Marin (SD).

The recovery fund is part of a multiannual financial package, which will therefore also be negotiated over the weekend. The multi-annual financial package was finalized during Finland's EU Presidency, ie at the end of last year.

On Wednesday before the weekend summit, the European ministers will prepare for the weekend talks. Finland is represented by Tytti Tuppurainen (SD) in the video conferences of European ministers. Tuppurainen stated in an interview with BTI over the weekend that Finland does not approach the negotiations through threshold issues, but the most important thing is to find a solution. According to him, the main goal is to reach an agreement.

The idea for the recovery fund is the handwriting of Germany and France. German Chancellor Angela Merkel and French President Emmanuel Macron presented a 500 billion fund in May. The European Commission made its own proposal on this issue, which met with opposition in the Member States. Member States discussed the Commission's proposal at the Midsummer Friday summit.

Charles Michel, President of the European Council this weekend, announced his own compromise proposal last week on 10 July. He discussed the details of the package with the heads of state of all Member States. At the weekend, there is a Michelin proposal on the table.

The President of the Council of Europe, Charles Michel, presented his proposal on 10 July.

Photo: Kenzo Tribouillard / Reuters

Weekend negotiations are expected to be difficult, as there are still many differences between Member States. Member States need to address at least these four basic issues.

1. Loan to grant ratio and package size

The European Commission's original proposal sets out a package of EUR 750 billion, of which EUR 500 billion would be in the form of grants and EUR 250 billion in loans. In the Michelin proposal, the distribution ratio of the package remained the same. Finland has pushed for the distribution ratio to be changed from grant-based to loan-based and to reduce the total amount of the entire package.

In addition to Finland, the so-called skimpy four, ie the Netherlands, Austria, Sweden and Denmark, have called for an increase in the loan-weighting of the recovery instrument.

Michel defended the grants at a press conference on his proposal, saying they are important to certain member states so that their debt burden does not become unreasonable. These Member States, for example, have been severely affected by the interest rate in Italy and Spain.

The package would be financed by a loan from the Commission on the financial markets. The Commission's solidarity-based borrowing to such an extent has been rubbed off in many Member States. In Finland, the Committee on Constitutional Affairs ruled in June that the Commission's proposal would not be in line with the EU Treaty. The matter was investigated by the Legal Service of the Council of the European Union. The Legal Service considered that borrowing was not prohibited by the EU Treaty.

An EU Council legal service statement eased concerns about the emergency fund, the Committee on Constitutional Affairs said on Tuesday.

- In a certain way, we can talk about the mid-term review, Johanna Ojala-Niemelä, the chairman of the committee, told the media in Parliament.

The Committee on Constitutional Affairs called for a more detailed study of the Fund's relationship with the Treaties. Committee chairman Johanna Ojala-Niemelä (sd) spoke to the media on Tuesday.

Photo: Heikki Saukkomaa / Lehtikuva

2. Loan repayment period

Under the Commission proposal, the loan would be repaid in 2028-2058. In Michelin's new negotiating proposal, the repayment of the loans would start earlier, already in 2026, which has also been Finland's wish. However, Finland has pointed out that the repayment period is too long. The European Parliament has also called for attention to be paid to repaying the loan.

3. Repayment of the loan

The loan is to be covered either by the EU's own income or by higher membership fees. There is at least a new plastic levy on the table, which looks at the rate of plastic recycling in the Member States. Michelin's proposal also introduces a new carbon mechanism and a separate digital tax on non-European technical waste.

4. Award criteria

The resources of the Recovery Fund are distributed to the member states through EU budget programs. The Commission's proposal for receiving grants set out the economic and employment developments in recent years. The Michelin proposal would allocate 70% of the grants to be distributed between 2021 and 2022, as proposed by the Commission, and the remaining 30% based on the effects of the interest rate crisis in 2023.

Finland has criticized the Commission's allocation criteria and hoped that the money would be better allocated to respond to the economic impact of the interest rate crisis. This would be extremely important for Finland as an export-driven country, as Korona has had a significant impact on exports. According to a recent forecast by the European Commission, Finland will recover from the economic difficulties caused by the coronavirus more slowly than other euro countries next year.

Countries are also required to draw up their own recovery and sustainability plans, which would be used as a basis for allocating funding. In the plans, Member States must commit themselves to EU economic governance and to the Community's environmental and climate objectives. In addition, there is a budget commitment to the rule of law. In doing so, the EU seeks to protect its budget from breaches of the rule of law.

Germany has hoped that the talks will be concluded before August. Tytti Tuppurainen estimates at the weekend that if these negotiations do not finish the matter, a second round of negotiations will be agreed in the near future.