EU Leaders Clinch 750 Billion-Euro Coronavirus Recovery Fund

European Union leaders agreed on a landmark stimulus package that will see the bloc issue 750 billion euros ($860 billion) of joint debt to help member states mitigate the economic downturn.

The agreement, which came after more than four days of acrimonious negotiations in Brussels, required the unanimous approval of all 27 member states and represents a victory for German Chancellor Angela Merkel and French President Emmanuel Macron, who drafted an early outline for the proposal in May. The emergency fund will give out 390 billion euros of grants and 360 billion euros of low-interest loans.

Almost a third of the funds are earmarked for fighting climate change and, together with the bloc‘s next 1 trillion-euro, seven-year budget, will constitute the biggest green stimulus package in history. All expenditure must be consistent with the Paris Agreement’s goal of cutting greenhouse gases.

The emergency funds will not only unleash vital financial support to the southern European economies hit hardest by the virus, but serve as validation that the bloc can offer meaningful solidarity to members in need. With more than 100,000 Europeans dead from the virus and an economy to rebuild, investors were looking for a display of unity to sustain the rally in stocks.

“This agreement sends a concrete signal that Europe is a force for action,” Charles Michel, president of the EU leaders‘ council, said at a press conference afterward. “I believe this agreement will be seen as a pivotal moment in Europe’s journey.”

Italy, the original European epicenter of the pandemic, will likely be the biggest beneficiary from the plan and expects to receive about 82 billion euros in grants and about 127 billion euros in loans, according to initial estimates, a senior Italian official said. Provisions to combat sliding democratic standards in eastern Europe were weakened at the last-minute to get the deal over the line.

The agreement did not come easy. Talks came close to collapse at several points over the summit as clashing national interests suggested consensus might be out of reach.

While governments all agreed that economic contractions of as much as 10% in some countries called for extraordinary measures, they bickered over hours over the final amount of grants, as well as how future disbursements could be scrutinized.

In the end, it largely came down to offering enough sweeteners to a group of fiscally hawkish northern countries made up of Austria, Denmark, the Netherlands and Sweden, which pushed for a smaller package. To bring them on board, Merkel, Macron and leaders from Europes South agreed to reduce the grants envelope from 500 billion euros as proposed

Crucially, the final compromise also included cash rebates for these nations from the EUs regular budget, reducing their annual net contributions. Denmark, Germany, the Netherlands, Austria and Sweden will get more than 50 billion euros in rebates over seven years.

— With assistance by Diederik Baazil, Boris Groendahl, and Milda Seputyte

(Updates with MIchel comment in fifth paragraph)