Last week’s summit on the EU budget and a coronavirus recovery plan lasted 100 hours marked by several nights of squabbling and acrimonious brinkmanship.

EU leaders agreed to a financial stimulus package to be paid out of a special fund to the European countries hardest hit by the COVID-19 pandemic threatening to disrupt the single market. €390 billion will come in the form of grants that do not need to be repaid and €360 billion as cheap loans.

The long days of negotiations were marked by bitterness and hostility centred chiefly on the coronavirus stimulus package. They were dominated by President Emanuel Macron of France and Angela Merkel, the German Chancellor, who brokered the final deal with a mixture of strong-arm tactics and bribes to individual states.

Macron and Merkel also made key concessions, including allowing increases in rebates that France wanted to abolish, and ensuring the support of Poland and Hungary by abandoning plans to make funding conditional on ‘rule of law’ standards. 

In the eurozone banking crisis 10 years ago, the stimulus to save highly-indebted countries came with interest rates and severe austerity obligations attached. This created resentment in the southern European countries affected – Italy, Spain, Greece, Portugal and Cyprus – that still festers.

On the other hand, the stimulus package to recover from the severe impact of the coronavirus pandemic has led to strong opposition from the so-called ‘frugal four’ rich northern states: the Netherlands, Denmark, Sweden and Austria.

They were opposed to allowing the EU to run up collective debt paid out as budgetary expenditure rather than loans  and were determined that any deal should not lead to a ‘permanent transfer union,’ with money flowing from northern European taxpayers to southern European borrowers.

To its critics the EU was born in sin. A project devised by and for the elites- Martin Scicluna

Bitter resentment and animosity from the summit, and the deep EU divisions it revealed, are expected to linger after France and Germany both repeatedly threatened to walk out.

During one angry clash in the early hours of the last day, President Macron accused Dutch Prime Minister Mark Rutte and the Austrian Chancellor Sebastian Kurz, who led the opposition to the common debt fund, of “egotism” and “taking Britain’s place” as a blocker of European integration threatening the existence of the EU itself.

In truth, the divisions go wider and deeper than that. The hard-line tactics have reinforced fears, often expressed by smaller countries, that the EU in future will be dominated by the agenda of France and Germany. The messy negotiations leading to the recovery plan may have sown the seeds of future conflicts: east-west and north-south.

As leaders wrangled over an agreement between the French-led camp and the ‘frugal four’, a new front opened up in the battle as central and eastern European governments, led by Poland and Hungary, rejected calls that all EU funding payments should be tied to ‘rule of law’ standards.

Mateusz Morawiecki, the Polish prime minister, said he would veto any compromise that included such a rule of law control clause. He insisted that for the recovery plan to be acceptable there must be no discretionary powers for EU bodies or institutions regarding the rule of law. The Commission immediately dropped the condition.

The recovery agreement will unleash a stimulus to the countries – predominantly Italy, Spain and France – which have been the worst affected by the virus, but will not end resistance to future sharing of debt. Far from it.

The days of ill-tempered negotiations have entrenched and highlighted divisions. Just as the southern states brought their resentment at past austerity to the negotiating table, nations in the north will not quickly forget the scars inflicted to secure the deal, especially the accusation by France that Dutch opposition amounted to the same Euroscepticism that led Britain to leave the EU. 

Although the pandemic rescue plan is a considerable political achievement, pushed hard by France and Germany, it is unlikely to prove a great leap forward in terms of European integration. Their hard-line tactics have reinforced fears of smaller countries that the EU will be dominated by France and Germany now that Britain has left.

The fractious divisions present the EU with an unprecedented challenge to its future unity, identity and administrative capability. The pandemic crisis has hit the continent’s economies exacerbating the EU’s efforts to muster an effective and coordinated rescue plan.

To its critics, the European Union was born in sin. A project devised by and for the elites, lacking democratic legitimacy. All attempts to make good the ‘democratic deficit’ have failed. The EU is not a country. It is a hybrid. Part international organisation and part federation.

The Commission is not a government. It has the near-exclusive right to propose new legislation to be approved by both the Council of Ministers (representing governments) and the European Parliament. It is a powerful civil service, policeman of the single market with powers to recommend sanctions against dilatory countries.

But widespread disagreement between 27 disputatious states on the recovery plan has led to the EU appearing weak and divided. The rise of populists, nationalists and Eurosceptics and the poisoning of domestic politics across the Union has hampered decision-making by governments.

It is for national leaders to heal the gaping divisions which last week’s summit have exposed. The EU must fix its flaws by making the bold and wide-sweeping reforms needed to tackle the instability caused by the pandemic and the north-south/east-west tensions to which it has given rise.

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