MNI EXCLUSIVE: Frugal Four Still Resisting Ahead Of EU Summit

--Fierce Fight Seen Over Allocation Of Funds

By David Thomas

     BRUSSELS(MNI) - EU leaders arriving for a summit to discuss the EU

long-term budget and the recovery and resilience fund stressed that their

intention remained to get a deal by Saturday night, but EU sources and those

close to the so-called "Frugal Four" countries anticipated a fierce tussle over

subjects including allocation of any funds agreed.

     Officials for the EU's presidency have increasingly put stress on the

worsening economic situation as cause for urgent action on the budget and the

recovery fund, but some delegations argue that time is not quite so pressing.

     One diplomat close to the Frugal Four, which groups the Netherlands,

Austria, Sweden and Denmark, noted the failure of any countries to apply for any

of the EUR240-billion in low interest and unconditional loans on offer from the

European Stability Mechanism.

     "Apparently, there is no urgent need for money."

     An EU official reinforced the point, suggesting that maybe there is "not

enough drama" in the air for leaders to feel that a deal has to be hammered out

in the next 24 hours.

     "We are not there yet, An agreement is not guaranteed and there are still

important differences and bridges to be built," another EU official said on the

eve of the meeting.

     --DUTCH INSISTENCE

     A number of big sticking points make the prospect of agreement this weekend

still elusive, including the insistence by the Dutch that disbursements of

recovery fund money must be approved by unanimity by EU member states and a veto

threat by Hungary on plans to make Rule of Law a condition of disbursements.

     That said, the Netherlands is now the only member of the Frugal Four to

insist on unanimity in exchange for agreement to the principle of loans for

grants, suggesting that at least some progress has been made in terms. A

diplomatic source also indicated that the Netherlands could live with a further

measured reduction in the EU budget.

     As regards the recovery fund, Netherlands sources say their objections are

not really about the money per se. They argue that they just want to make sure

that recovery fund money is well spent and that structural reform programs are

credible and likely to lead to improvements in productivity and economic growth.

     "The dispute is not so much about loans for grants now - the big fight is

over allocation - who gets what, who keeps what," one official said.

     Traditionally, leaders try to manage expectations going into the later

stages of EU budget negotiations but officials suggest there is a higher degree

of uncertainty this time over what happens next and over what the strategy of

the potential deal makers - EU Council President Charles Michel, Angela Merkel

and Emmanuel Macron is likely to be.

     The agenda for the talks today and tomorrow seems to have been left

deliberately vague. There is an expectation among officials that the big three

will try and focus the talks on one or two big issues and that more than one

series of key bilateral meetings will follow before any new proposal is tabled

by the German EU presidency, having taken into account the views of member

states.

     Apart from that, officials remain cagey on what the negotiating strategy is

and what the next steps will be. But at the very least, they expect that this

weekend's summit will be a useful scoping out exercise on the road to a final

deal, identifying where the major obstacles and sticking points are and testing

compromise ideas and solutions before another summit can be arranged most likely

at the end of the month.

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

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