Hardliners show hints of compromise on EU recovery fund

Sweden, Denmark, Austria and the Netherlands would prefer loans with conditions rather than grants to southern European states, but they are also hoping a deal can be reached

by AFP
Hardliners show hints of compromise on EU recovery fund
Passengers queue at a HolidayEurope airline check in counter at Duesseldorf airport in Germany on July 1, 2020 after the EU opened borders to more non-EU countries. Photo: Ying Tang/NurPhoto via AFP.

Normally perceived as team players, Sweden and Denmark have found themselves playing the unaccustomed role of outliers in EU politics, blocking the widely backed Covid-19 recovery plan.

Part of the so-called "frugal four", the two Scandinavian countries are part of the last holdouts in passing a massive stimulus plan for the EU countries whose economies have been ravaged by the new coronavirus pandemic.

"Until now we have been hiding behind the Brits and broadly people have seen Denmark as a nice, compliant country to EU law, but now the truth comes out," Marlene Wind, professor of political science at the University of Copenhagen said.

Neighbouring Sweden, which joined the EU in 1995, has also mostly looked for pragmatic solutions and not made too much noise at summits.

But it too joined the Netherlands and Austria, and the four are expected to make their opposition clear at the special European Council meeting on July 17 and 18, when the post-Covid-19 recovery plan is on the agenda.

The plan, backed in particular by Berlin and Paris, requires unanimous approval to be adopted.

European Council president Charles Michel was due to present a "negotiation box" on Thursday or Friday, with proposed figures that will serve as a basis for negotiations.

Grants or loans 

The main point of contention is whether aid should be handed out in the form of grants or – as the "frugals" demand – loans.

Adverse to the idea of simply paying for the union's southern members, which have been disproportionately affected by the Covid-19 pandemic but also considered fiscally lax or even irresponsible by some members, the "frugals" insist that aid needs to come with a plan for repaying the funds in the future.

Proponents of the recovery plan have instead argued for the need to show "solidarity".

But according to Annika Strom Melin, a former director of the Swedish Institute for European Policy Studies (SIEPS), the calls for political cooperation have been met by "incomprehension and criticism" in Sweden, with the analyst noting that the country joined primarily to gain access to the common market.

Which is the point French Secretary of State for European Affairs, Amelie de Montchalin, since July 6 the Minister of Public Transformation, was trying to drive home when she visited Sweden in early July to overturn the Swedish "nej" (no).

She argued that plan for a 750-billion-euro ($847 billion) fund "is a revival of the internal market, (...) in which there are 27 of us and in which we see that no country has the means to recover on its own."

During the last budget negotiations, Copenhagen and Stockholm, like The Hague, got a rebate for the 2014-2020 period, which could be renewed for 2021-2027.

According to an EU source, the opposition on the recovery plan is also a way to apply pressure aimed at securing that rebate.

"All this has a main purpose: they want their rebate," the source said.

Room for compromise 

Within the EU, the Scandinavian countries, both net contributors, have been in favour of a limited budget.

"The Prime Minister always says we have to protect the Danes from those who take money from the Danish welfare state," Wind said.

Wind also noted that Denmark's Prime Minister Mette Frederiksen, and the country's social democrats managed to bring back voters by adopting a more anti-immigration and eurosceptic agenda in the last election, thusly stealing the wind from the sails of the populist Danish People's Party (DF).

Having grown in popularity thanks to her handling of the new coronavirus, Fredriksen is likely to maintain her line.

However, the recovery plan might not be doomed as is there still room for compromise, according to Daniel Tarschys, a professor of political science at Stockholm University.

"What many haven't noticed is how many concessions the four 'frugals' have already made," Tarschys said. "They now accept shared debt by letting the Commission use its excellent credit rating," he continued.

Tarschys added that the four "frugals" have stressed that funds need to be directed at investments focused on the future. "That stance probably is well suited to gain broad acceptance."

Financial and environmental guarantees on the use of the funds could also help soften the opposition of the Scandinavians.

Softening stance?

Meanwhile, Austria and the Netherlands, the two others from the "frugal four", also showed signs they may be softening their stance on Thursday.

Austria, Denmark, the Netherlands and Sweden have all said they want to rein in the spending, which is earmarked mainly for the hardest-hit poorer countries of southern Europe.

But Dutch Prime Minister Mark Rutte said Thursday he considered the proposed fund "very important," so long as the cash came with conditions attached.

"It also is very important that such a fund is implemented together with reforms so that all EU member states are also strong," Rutte said ahead of evening talks with German Chancellor Angela Merkel in Berlin.

Earlier Thursday, Austrian Chancellor Sebastian Kurz also suggested Austria could back the package if aid was tied to certain conditions, such as climate protection, willingness to reform and rule of law.

"We want to find a compromise... I'm glad if there is a quick solution," Kurz said. 

The "frugals" insisted that loans with tough conditions attached, rather than grants, were their preferred method of rescue.

Other countries have argued that the plan misallocates the money, giving too much to eastern Europeans who were never on the front lines of the pandemic.

Merkel on Wednesday urged EU countries to show solidarity and overcome deep divisions to approve the massive coronavirus recovery plan this summer.

Alexander Dobrindt, the parliamentary leader of the Bavarian CSU conservatives in Germany, on Thursday called on Rutte to soften his stance on the non-repayable grants that make up 500 billion euros of the proposed fund.

Attaching certain conditions to the funds could act as a "bridge" to bring sceptical countries on board, Dobrindt DPA. 

"I am relatively sure that even the so-called frugal four will not and will not want to evade such a logic," he said.

According to Friday's edition of the conservative German daily FAZ, Rutte could be the final stumbling block for the recovery package.

"The head of the Dutch government finds himself isolated a week away from the European summit" after Kurz "softened his stance on Thursday", the newspaper said.

"The last two countries in the frugal four, Denmark and Sweden, should not oppose Angela Merkel's call for a rapid agreement," it added.