EU leaders resolve stand-off over $2.9t stimulus package

BRUSSELS • European Union leaders meeting in Brussels have resolved a stand-off with two eastern member states that had threatened to delay a historic €1.8 trillion (S$2.92 trillion) budget and stimulus package just as the latest wave of coronavirus infection ravages the continent's economies.

A deal was agreed on Thursday with Hungary and Poland, which had protested a mechanism tying funding to upholding democratic norms.

The German-brokered compromise offers reassurances over how the new conditions will be applied, but the rule-of-law provision remains in place. The dispute was the culmination of years of clashes between Brussels and the two countries over everything from political meddling in the judiciary to LGBTQ (lesbian, gay, bisexual, transgender and queer) rights.

Under the compromise, the conditionality will kick in only from Jan 1 next year and relate to commitments under the new budget. Penalties, meanwhile, will be enacted only after the European Court of Justice has had its say, which could take months.

The European Commission estimated that the plan could add around 2 per cent to the bloc's economic output by 2024 and create two million additional jobs by 2022.

"Now we can start with the implementation and build back our economies. Our landmark recovery package will drive forward our green and digital transitions," European Council president Charles Michel said on Twitter.

There was a lot at stake for Hungary and Poland. The pair are the biggest net beneficiaries of EU cash, helping their economies close the gap on their richer neighbours to the west, and are in line for at least €180 billion from this spending package.

Had they gone ahead with their vetoes, the EU would have switched to an emergency budget from next year.

That would have seen funding plunge in almost all areas and potentially put Poland and Hungary at the back of the line for even the limited development aid that would be available.

To underline some continued near-term leverage over the EU, Hungarian Prime Minister Viktor Orban noted that the EU budget and recovery fund would still need ratification in national parliaments, including the Hungarian and Polish ones, before coming into force.

Some legal experts have criticised the agreement, raising concerns that it lets Mr Orban in particular off the hook.

EU leaders also discussed Covid-19 vaccines, relations with Washington, sanctions on Turkey for drilling in contested waters in the east Mediterranean Sea and extending sanctions on Russia.

BLOOMBERG, REUTERS