EU leaders reach deal on budget and $858 billion Covid-19 recovery

EU leaders have approved a landmark stimulus package to fight the withering aftershocks of the coronavirus outbreak that has sunk Europe into its deepest recession in history.

Weary but relieved, European Union leaders agreed on an unprecedented $2.1 trillion (1.8 trillion-euro) budget and coronavirus recovery fund early on Tuesday, somehow finding unity after four days and nights of intense negotiation that saw threats of walkouts and fierce intransigence by the Netherlands.

The unprecedented $858 billion (750 billion euro) Covid-19 fund was sealed on Tuesday after "Deal!" was tweeted by EU Council Chief Charles Michel, whose job was to guide the tortuous talks over more than 90 hours.

Joint-debt funding

The package was made possible by the crucial backing of Germany and France and includes the biggest ever joint borrowing by the 27 members of the bloc, something that had been resisted by Berlin for generations.

The deal is a special victory for French President Emmanuel Macron who came to office in 2017 committed to strengthening the European Union but had struggled to deliver against member states with less ambition for the seven-decade-old EU project.

He hailed "a historic day" for Europe.

The package will send tens of billions of euros to countries hardest hit by the virus, most notably heavily indebted Spain and Italy that had lobbied hard for a major gesture from their EU partners.

Their call for solidarity was met with the fierce opposition of the "Frugals", a group of small, northern nations led by the Netherlands, who believed strongly that the stimulus package was unnecessary.

The frugals were also deeply apprehensive of sending money to southern countries that they see as too lax with public spending.

To meet their concerns, payouts from the package will come with important strings attached – a hard pill to swallow for Rome and Madrid who deeply resisted anything resembling the harsh bailouts imposed on Greece, Portugal or Ireland during the debt crisis.

The frugals were also enticed with heavy rebates on their EU contributions, furthering a practice first offered to Britain decades ago, when it was still a member.

READ MORE: EU leaders bicker over virus recovery deal stalemate

Controlled spending

The recovery package will complement the unprecedented monetary stimulus at the European Central Bank, that has largely succeeded in reassuring the financial markets despite a catastrophic recession in Europe.

Overall, the deal will dole out 390 billion euros in the form of grants to pandemic-hit countries.

That was lower than an original 500-billion-euro proposal made by France and Germany.

Another 360 billion euros was to be disbursed in loans, repayable by the member state.

The stimulus payments will not be blank cheques to member states.

Spending will be closely controlled and must be devoted to policies seen as compatible with European priorities, including politically difficult economic reforms as well as the environment.

Rule of law strings

The European Commission, the EU's executive arm, will be in charge of distributing the funds, with the 27 member states able to turn down a spending plan if a weighted majority of them decide to intervene.

The plan was nearly upended by Hungary and Poland due to a demand that EU payouts be tied to the "Rule of Law", Brussels jargon for upholding laws on freedom of speech and an independent judiciary.

A diplomat from the major EU nation said that had been settled too but no details were available.

Budapest and Warsaw are under fire for offending EU norms, but a proposal to tie the EU budget to those concerns was watered down to the satisfaction of Hungarian Prime Minister Viktor Orban and his Polish counterpart.

The package now requires more technical negotiations among member states as well as a ratification by the European Parliament that could happen as soon as Thursday.

READ MORE: After Brexit, EU faces ‘most difficult’ budget negotiations in history