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For the EU, deciding how to fund the recovery is only half the battle

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Via Financial Times

Europe’s debate over ways of financing the post-corona crunch recovery has been bitter enough, but member states have hardly touched the vexed question of exactly who gets the money.

A taste of how difficult the conversation will be has come with the controversy over the commission’s €37bn Coronavirus Response Investment Initiative (CRII) — an emergency relief effort that was proposed last month. 

The cash was gathered from unspent funds in the EU’s cohesion programmes, and was distributed according to the rules that govern the regional aid regime. As a report from the European Stability Initiative think-tank showed over the weekend, this meant that Hungary was a major recipient of the money even though it has by no means been as hard-hit by coronavirus as the likes of Italy. 

While Italy received €2.3bn, Hungary, which has a sixth of its population, stood to receive €5.6bn. The inequitable allocation of emergency funding makes plain the need to reform the EU budget process, said Gerald Knaus of the European Stability Initiative. “If this doesn’t lead to a wakeup call, then the EU is suicidal,” Mr Knaus told the FT. 

The irony of the CRII is that it was adopted the same day the Hungarian parliament gave strongman premier Viktor Orban the right to rule by decree indefinitely. The money represented a windfall for the government of a man who has, according to his critics, brought the country’s judiciary and much of its media to heel while eroding checks and balances and forging ties with Eurosceptics. 

On one level, it was hardly surprising that Hungary did well out of CRII. As Elisa Ferreira, the commissioner who oversees regional funds, said on Twitter on Sunday, the CRII was never meant to redistribute money, but rather to make funds immediately available based on existing cohesion envelopes. 

But with commission president Ursula von der Leyen promising to make the EU’s budget the engine of the post-corona recovery, the episode marks an early sign of how contentious it will be figuring out universally accepted ways of apportioning future pots of cash. 

Already, countries that are heavy recipients of cohesion funding are warning they will not accept a redrawing of the budget that diverts money away from them and towards countries that have been worst-affected by the crisis. 

“I suspect the rich countries are going to say we should be using more of the funds we have and migrating them from cohesion policies to the recovery and things like that,” Tadeusz Koscinski, Poland’s finance minister, told the FT. “Any funding for the Covid response should be additional. We shouldn’t be touching what’s already been agreed.”

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For its part, the commission is likely to push for cohesion to be reinforced, rather than raided. After all, central and eastern European countries that are more reliant on cohesion have also been economically clobbered by coronavirus, and they arguably face a steeper climb to get back to economic health given their less advanced economies. 

But the EU budget is ultimately decided by the member states. And debate doesn’t end there. A battle is also looming over the criteria that will govern any recovery fund that the EU hatches. Leaders will on Thursday be asked to endorse eurogroup suggestions that a fund should be raised to fuel economic growth once the lockdowns ease. 

Some EU capitals are already demanding that the funding should not be too heavily skewed towards the nations most heavily affected by the coronavirus slump. After all, no country has been left unscathed by the crisis. 

“This recovery fund must serve everybody,” Pierre Gramegna, the Luxembourg finance minister, told the FT. “I don’t think it should be reserved to those countries that have more problems. It is a symmetric crisis — it must be available to all.” 

In his paper, Mr Knaus proposes the creation of a new mechanism to disburse pandemic recovery funds, dubbed a “Solidarity and Democracy Administration”, similar to the way the US administered the Marshall Plan after the second world war. Any EU country could apply for grants from the mechanism — provided it committed to respecting the values of the EU treaties and the verdicts of the European Court of Justice.

For his part, Mr Koscinski simply insists that all the countries need to have a “fair share”. But what seems fair to one EU country is rarely judged the same way elsewhere.

sam.fleming@ft.com; @Sam1Fleming
valerie.hopkins@ft.com; @VALERIEin140
james.shotter@ft.com; @JamesShotter

Your coronavirus reads

  • Vast levels of public spending triggered by the coronavirus crisis will force economists to rethink the way they approach pricing, markets and government balance sheets, writes Zachary Karabell in Foreign Affairs.

  • Noah Smith at Bloomberg View writes the crisis is keeping Bernie Sanders’ prescriptions for creating a fairer society alive and kicking. 

  • This Axios article argues eating out will change dramatically once the world emerges from its self-induced coma. Taking customers’ temperatures at the door may be on the menu.

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Chart du jour: mortality displacement

Yale cardiologist and medicine professor Harlan Krumholz has reported a sharp decline in the number of admissions for heart attacks and strokes, both in the US and in Spain, in recent weeks. So what is behind the surprising trend? The FT explains

Pandemic news round-up

© Getty Images

Extended lockdowns 
European nations continue to extend their lockdowns — albeit with some relaxation of the current rules. Spain, where the data is displaying early signs that the pandemic is under greater control, has extended its lockdown until May 9, but the authorities will now allow children out of their homes. Greece is hoping to gradually start loosening its coronavirus restrictions from next month, prime minister Kyriakos Mitsotakis said in an interview with Kathimerini newspaper (El PaísFTKathimerini)

‘Grotesque’ suggestions 
The UK’s cabinet office minister, Michael Gove, has hit back at suggestions that the British prime minister was asleep at the wheel when it came to handling the coronavirus pandemic, arguing the criticism is “grotesque”. His comments emerged after a report in the Sunday Times pointed to Boris Johnson missing five key meetings on what action the UK should take in the lead up to the current situation. Mr Gove confirmed the prime minister was not at the Cobra emergency committee meetings. (The Times, FT)

‘Bad bank’? Not for now, says EU 
European Central Bank officials have held high-level talks with Brussels counterparts about creating a eurozone bad bank to remove billions of euros in toxic debts left from the last crisis. But it is getting a lukewarm reception in Brussels, where officials are reluctant to waive EU rules requiring state aid for banks to only be provided after a resolution process imposes losses on a bank’s shareholders and bondholders. “Nothing is moving,” said a person briefed on the talks. (FT)

© REUTERS

Crackdown on aid fraud 
Berlin is targeting coronavirus-related fraud as evidence grows that scam artists, many of them based in eastern Europe, were hijacking the country’s generous aid programme for businesses hit by the pandemic. (FT)

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Sweden’s surprising approach 
Stockholm decided to go against the grain when it came to imposing strict lockdown measures and figures so far are showing the move is paying off. One reason, experts suggest, is that Swedes were good at social isolation to start with. (Bloomberg)

Slick move 
US oil prices crashed to a more than two-decade low as the coronavirus pandemic hits global demand for crude and raises concerns about storage facilities being overwhelmed. West Texas Intermediate plunged as much as 20.8 per cent to $14.47 a barrel on Monday morning. Jefferies analyst Jason Gammel said the oil industry faced “the bleakest oil macro outlook since at least the late 1990s and perhaps ever”, (FT)

Elsewhere in Europe

More than words 
In an interview with El País newspaper, former UK prime minister Gordon Brown argues countries need to deal with a crisis as a collective to be effective. As part of this, he argues the G20 should have executive powers to deal with future global issues. (El País)

Joint pitch 
Giuseppe Conte, Italy’s prime minister, has renewed his pitch for jointly issued bonds in an interview with Süddeutsche Zeitung ahead of an EU leaders call on Thursday. Common action is needed to ward off the risk of contagion between countries, he said. (SZ

Events this week
Bruegel is teaming up with the FT’s Brussels Briefing to bring you two more livestream events this week with top EU policymakers.

Elisa Ferreira, European Commissioner for Cohesion and Reforms will be in conversation with Jim Brunsden of the FT and Bruegel’s Deputy Director, Maria Demertzis, to discuss how the EU is responding to the coronavirus crisis by seeking to help those who are most affected. Click here for more details of the event on Tuesday at 13.00 CET.

Ylva Johansson, European Commissioner for Home Affairs, will be in conversation with Bruegel’s Director Guntram Wolff and Michael Peel of the FT, to discuss how cyber-criminals are taking advantage of the coronavirus pandemic. More details of the event on Thursday at 13.00 CET are here.

Coming up this week on the EU agenda 
On Thursday, EU leaders are holding a teleconference to discuss economic recovery proposals from the Eurogroup earlier this month. 

javier.espinoza@ft.com@JavierespFT 

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