RPT-MNI EXCLUSIVE: EU Covid Fund Splits Deepen Ahead Of Summit

--Germany Wants EUR750 billion Plan Scaled Back

--Frugal Four Want Lower Level Of Grants, More Conditionality

By David Thomas

     BRUSSELS(MNI) - Divisions are opening up between European Union states over

a proposed Recovery and Reconstruction Fund to restore growth after the Covid-19

pandemic, with Germany arguing that the European Commission's EUR750 billion

plan should be scaled back in line with an earlier EUR500 billion Franco-German

proposal, sources familiar with governments' lobbying told MNI.

     At the same time, the insistence by southern European countries that they

should be the main recipients of aid is running into opposition not only from

the so-called Frugal Four -- grouping the Netherlands, Austria, Sweden and

Denmark -- but also from Eastern European countries, one official said, speaking

ahead of Friday's video summit.

     Eastern nations are arguing relative income levels should continue to be

taken into account when it comes to allocation.

     "Those countries set to be worst hit by the exit of the UK from the EU at

the end of this year, such as Ireland, Belgium and Netherlands, are also arguing

that they can't be expected to be paying for the south, particularly if a no

deal Brexit materialises," the official said.

     The Frugal Four continue to oppose the prominent role of grants in the

Commission proposal. They also have concerns over the legal basis of the

proposal and are demanding stricter conditionality.

     Officials say the group is pushing for reinforced economic surveillance in

the future over countries which accept the aid, although this is fiercely

opposed by the likes of Italy and Spain.

     --GERMAN PRESIDENCY

     While it looks unlikely that they will win these demands, some appeasement

of the Four will doubtless be necessary given that the approval of the RRF by

the EU-27 and their parliaments needs to be unanimous.

     The incoming German presidency of the EU is pushing for a physical summit

in mid-July to try to get a deal, although some officials believe it is likely

to take much longer. Germany itself is unhappy with the Commission's proposal, a

mixture of loans and grants, and wants to return to its own earlier plan, agreed

with France, which is smaller but more based on grants.

     EU President Charles Michel has pitched the summit discussion on the RRF as

an 'orientation debate', ruling out any agreement this week.

     "There will be no decisions, no real debate even, but the idea is that it

will be a stepping stone to a future debate."

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

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