EU clears key hurdle for Euro 1.8 Trillion spending package

European Union negotiators reached a preliminary deal with the bloc’s lawmakers on a mechanism linking recovery funds to abiding by democratic standards, moving a step closer to a broader accord on the bloc’s 1.8 trillion-euro ($2 trillion) budget and stimulus package.

“We have witnessed months and even years of rule-of-law talks dragging on without conclusion between EU member states,” said European lawmaker Petri Sarvamaa, who was negotiating on behalf of the Parliameent. “This will not be the case anymore with the new budgetary clause.”

The EU is under pressure to finalize the emergency package so that it will be operational next year, as a new set of lockdowns across the continent paints a grim picture of Europe’s economic outlook and dims prospects for a quick rebound.

While leaders agreed on the broad outlines of the unprecedented package in July, they left key details to be fleshed out later, including the contentious link between EU funds and rule of law. EU officials are due to set out details of the compromise at a press conference at noon on Thursday.

“Introducing this conditionality is a major step and a clear signal that the EU stands ready to protect its citizens’ interest,” EU Budget Commissioner Johannes Hahn said.

The deal on the rule-of-law mechanism clears the first of two key hurdles in getting an overall deal and allowing the EU’s 750 billion-euro recovery fund to be up and running in January as planned. Still, lawmakers and EU governments remain at odds over increases to the bloc’s budget, with the Parliament asking for a bigger overall package.

Potential Vetoes

While the agreement on the rule of law could give fresh impetus on the stalled talks over the spending package, it is still unclear whether it will get the support of all EU nations — especially Hungary and Poland, the two members of the bloc that are currently the subject of formal rule-of-law probes.

At stake is whether the EU can swiftly deliver hundreds of billions in much-needed funds to combat the steepest recession on record, while making sure the money isn’t misappropriated by countries where democratic checks and balances are weak.

If a deal is delayed or blocked, that could derail the bloc’s plans to issue debt on the markets to give out to EU nations as grants and loans in order to help their economic recovery.

The EU requires only a qualified majority of nations to impose the rule-of-law conditions on the funds, but the European Commission requires the unanimous approval of all member states (and a majority of EU lawmakers) to borrow from the markets. That means that in practice Hungary or Poland could veto the plan if they don’t like the rule-of-law language.

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