On Friday, 27 European governments are negotiating for the first time an offer of 750 billion euros ($ 841 billion) to overcome the Covid-19 crisis.
However, the new stimulus plan caused a split between the EU countries, and it is unclear when they will be able to overcome their differences.
“This is a necessary step,” said a European official from Brussels, who did not want to be called because of the delicacy of negotiations, CNBC announced on Thursday the first negotiations between the leaders.
Friday’s video call is not expected to come to an agreement, and at least another summit — most likely through face-to-face meetings — will be needed before a new fiscal stimulus is approved.
The region is facing one of the most serious economic crises in the postwar period. The European Commission, the EU executive body, estimated a reduction in May 7.4% gross domestic product in 2020. However, forecasts depend on how the health crisis develops, and on whether European economies manage to fully resume in the coming months.
“Our ultimate goal is to reach an agreement as soon as possible. To reach an agreement is still far enough away, so in the coming days and weeks we will need to work hard, ”said European Union President Charles Michel, who chairs the talks between EU leaders, said in a letter to 27 capitals this week.
The second European official, who also did not want to be called due to the delicacy of the negotiations, told CNBC on Thursday that negotiations for a personal meeting could be announced later on Friday.
European leaders have not met in person since February due to the crisis with coronavirus, and various technocrats argue that video meetings are more difficult to negotiate in numbers and edit documents. Consequently, the Brussels Summit will be an important step in creating new financial incentives.
What are the sticking points?
27 countries have differences in how much they should borrow in capital markets, and some countries claim that 750 billion euros is too much.
There is also a division about how this money should be distributed and in what form.
“We want to get the money back one day,” a second official working for one of the so-called “modest” countries told CNBC.
The “modest” peoples include Austria, the Netherlands, Sweden and Denmark. They were the most active opponents of collecting such an unprecedented amount from public markets and distributing this money mainly in the form of grants.
In a joint article published in the Financial Times, heads of state of four countries this week said: “There are no such things as new or fresh money. Money spent must also be earned and returned by taxpayers. ” “
In addition, there are other obstacles that must be overcome, for example, what conditions should be provided to new funds and how European countries will repay new debt.
The latter became an even more complex topic after the United States announced on Wednesday that it would stop negotiating an international digital tax and threaten retaliation if the region went ahead on its own.
The European Commission suggested that taxing technology giants could be a way to increase revenue and pay off some new debts. However, the application of this duty in the EU is currently more difficult without compromise with the United States.
The White House has threatened to introduce trade tariffs for countries taxing technology giants, as they believe that the duty is unfairly targeted at US companies. As a result, European governments face a difficult choice between taxing digital giants and the possible outbreak of a trade war with the United States.