MNI EXCLUSIVE: Frugal Four May Slow, Not Stop EU Pandemic Fund

--"Frugal Four" Objections Not Likely To Stop Pandemic Fund Plan

--Franco-German Backing Likely To Prevail, But Talks May Be Tough

By David Thomas

     BRUSSELS (MNI) - The European Commission's long-awaited pandemic recovery

fund proposal Wednesday looks likely to contain key similarities to a

EUR500-billion Franco-German plan unveiled last week, and sources said

objections from the so-called "frugal four" countries may delay if not

ultimately prevent a compromise agreement.

     "Maybe a small part of the 500 billion could be changed from grants to

loans - and there could be some nominal conditions," said one Brussels official,

after the objections raised in a joint statement issued Saturday by the

Netherlands, Austria, Denmark and Sweden.

     "There's quite a lot of important symbolism around the recovery fund

proposal, I don't think the objections from The Four can stop that," the

official said.

     Another source agreed, though noting that some concessions will have to be

made.

     "It's not really a powerful group but you need unanimity and approval in

all national parliaments."

     Another official noted that the Commission itself had mooted the idea of a

mix of loans and grants to help countries, regions and sectors most badly hit by

coronavirus, so a tweak in this direction could lead to compromise. Austrian

Chancellor Sebastien Kurz has not excluded the idea of a loan/grant combination,

the official noted.

     --EU TAXES

     But reports that the European Commission is also considering proposals for

EU taxes to help defray the cost of coronavirus-related borrowing look set to

further antagonise more fiscally conservative states and exacerbate difficulties

in talks on both the recovery fund and the already-challenging EU 2021-27

budget, which needs to be agreed by the end of the year.

     One source described the tax idea as "academically interesting" while

another noted, "member states don't usually like it."

     New taxes might meet with even less of a welcome with The Four than the

grants which underpin the Franco-German plan, one source said.

     A number of states oppose any significant increase in the EU budget. The

Four had mooted rebates, but these looks unlikely to fly in a situation where

nearly all western EU states look likely to end up as net contributors,

excluding flows from the Recovery Fund.

     "So that will not help unless the East gets less, which shows that

discussions will be very difficult and that indeed the Recovery Fund may become

hostage to the budget talks," the source said.

     EU leaders will discuss key issues around the fund and the new budget at

their June 18-19 summit.

--MNI London Bureau; +44 203 865 3829; email: jason.webb@marketnews.com

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