EU leaders are split over coronavirus recovery

Lockdown has proved challenging for most workplaces, and the European Council is no different. All-night sessions, corridor huddles and fine dining in the glass Europa building in Brussels have been replaced with hours staring at a gallery of fellow heads of state reading out prepared lines in front of a backdrop of EU and national flags – and the odd bit of pop art, as in the case of Luxembourg’s prime minister Xavier Bettel.

But this week, leaders will be forced to switch off their laptops and make their way across recently reopened borders to Brussels for their first face-to-face meeting in five months – and it is set to be a bruising encounter.

With the continent heading into a recession not seen since the 1930s, the EU’s institutional heads, the presidents of the European commission and council, Ursula von der Leyen and Charles Michel, have struggled to find consensus between sparring member states over both a long-term budget and a huge one-off economic stimulus. The German chancellor, Angela Merkel, and French president, Emmanuel Macron, have given their backing to a €750bn (£675bn) pandemic recovery fund. But “frugal” northern states have raised issues. Efforts to placate them have angered Hungary’s nationalist prime minister and the European parliament.

“It became obvious deals weren’t going to be made online,” said one EU official. “You need the work in the margins, bilaterals and discussions between advisers to find the common ground. It needed a physical meeting.”

But the set-up will be far from normal this weekend. The usual back-slapping and cheek-kissing will be replaced by social distancing in the presence of mask-wearing aides. The army of reporters that flock to the summits has also been banned from taking the usual seats in the expansive foyer of the Justus Lipsius building next door to the Europa.

The European commission forecasts an 8.3% drop in economic activity across the EU this year followed by a 5.8% rebound in 2021 but countries are expected to emerge from the crisis at starkly different speeds, risking a breakdown in the bloc’s single market as the disparity between Europe’s haves and have-nots is exacerbated

In Brussels’ latest proposal, Michel, a former Belgian prime minister said to have had a lacklustre first year in his role chairing leaders’ debates, only appeared to stir up new problems.

In response to the unapologetically “frugal” positions taken by Mark Rutte, the Netherlands’ prime minister, Michel tabled a €25bn smaller seven-year budget than last proposed, through which day-to-day programmes including the common agricultural policy are funded.

He also suggested greater accountability for countries seeking cash from the separate recovery pot, which is to be partly financed through issuing joint EU debt. But the move to placate the Dutch ended up annoying Hungary and Europe’s parliament.

One of the big tasks facing Brussels is bridging the demand for financial relief from countries such as Italy and Spain, whose economies are in freefall due to the pandemic, and maintaining the faith of sceptical taxpayers in the richer north. “Are European governments ready for their business to be our business?” asked one EU diplomat from a northern state.

Confirming EU officials’ predictions that the leaders faced a “very difficult” meeting, with doleful diplomats fearful that the talks starting on Friday will drag on into Sunday, Michel’s plan to find the right balance drew immediate fire from countries outside the “frugal four” of the Netherlands, Sweden, Denmark and Austria, who have hitherto made Michel’s life difficult by demanding less spending and tighter controls.

Following Michel’s suggestion that the commission be joined by the European court of auditors, the EU’s financial watchdog, in reporting on the governance of member states seeking recovery cash, and making funding conditional on backing from a qualified majority of member states, Hungary’s prime minister Viktor Orbán was first to go on the attack.

Speaking on state-owned Kossuth Rádió, Orbán threatened to scupper both the long-term budget and the recovery fund if “rule of law” strings were attached to funds, telling reporters “there will not be an economic restart, there will not be a budget, there will be drawn-out debates”.

“Let’s put this debate aside now,” Orbán said. “Let’s resolve the economic problems, restart our economies, start creating jobs, then we can continue the rule of law debates.”

Hungary and Poland could be big winners from the recovery fund but are facing proceedings over concerns that changes to their judicial systems have undermined the independence of their judges and breach EU treaties.

There was also rejection of Michel’s proposals from the European parliament’s negotiators, who disapprove of cuts to the budget known as the multi-annual financial framework.

Both the budget and recovery fund have to be approved by MEPs. A cross-party group has been tasked with finding a package that can command a majority in the chamber. The European parliament has strongly advocated a significantly larger budget for the bloc than Michel’s proposal of €1.074tn over seven years.

Rasmus Andresen, a Green MEP who is the only German budget negotiator for the parliament, told the Observer that Michel’s proposal would be swiftly voted down if it came to the chamber. He said: “We need a strong budget and if you want to deal with the future challenges you need to invest and it is not enough to have a recovery fund for three or four years.

There is a lot of criticism in the parliament and it will be much louder when colleagues are analysing what it means.”

If this week’s meeting fails to find common ground, a second has been pencilled in for the last week of July, with Merkel insisting the EU must resolve the problem by the summer.

Rutte – whose country would benefit from Michel’s proposed retention of its budget rebate and €5bn reserve set aside should the UK end its relationship with the EU without a new deal – said he would “handle” any criticism at this week’s summit.

“I’m not made of marzipan,” he said. “It is starting to go our way.”