EU budget crisis: Von der Leyen orders leaders to agree budget as EU running out of funds

European Commission chief Ursula von der Leyen has previously warned member states they have drastic cuts in cohesion spending, which has become central in the fight against the deadly disease. Now the German is hoping to use the crisis that has engulfed the Continent to refocus EU leaders’ minds and strike a budget deal before the current seven-year agreement comes to an end in December. As part of her leadership, she will unveil a new proposal for the bloc’s 2021-2027 budget designed to help keep the bloc afloat after the coronavirus crisis.

“To ensure recovery the Commission will propose changes in the MFF proposal that will allow to address the fallout of the coronavirus crisis,” she said on Saturday.

“This will include a stimulus package that will ensure that cohesion within the Union is maintained through solidarity and responsibility.”

European Council President Charles Michel has struggled to build a consensus amongst European capitals, with a near-30 hour summit in February ended with little progress.

This has sparked a debate over whether an emergency budget will need to be agreed for 2021, and whether member states, who remain fiscally divided over the bloc’s response to COVID-19, believe they can reengage in a time-consuming MFF debate at a time of global crisis.

Without such a short-term measures, the bloc will be without funds for development, border protection and research – cash that has been siphoned off to help fight coronavirus.

The Commission has vowed to spend £33 billion to provide liquidity to the European economy during the “deep crisis” of the COVID-19 outbreak.

Unused EU cash will be diverted to prop up small and medium-sized businesses, and complement national measures to tackle the deadly disease.

But Mrs von der Leyen has also warned the EU needs more than just a budget agreement if it is going to survive staring into the “abyss” after becoming the epicentre of the global pandemic.

“We will help Italy and Spain very intensively,” she told Politico.

“Several instruments, including bonds, are being considered and are discussed in the Eurogroup.”

Last week EU leaders failed to agree on the rollout of the so-called “coronabonds”, a collective debt scheme to help prop up the Eurozone economy.

Rome and Madrid were left infuriated after the proposals were kicked back to finance for more consideration after Germany’s Angela Merkel and the Netherland’s Mark Rutte put up stern opposition to the drastic rescue package.

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The EU’s financial regulation chief has also moved to delay a tough clampdown on lending rules for banks, to help them through the crisis.

Valdis Dombrovskis said he will no longer be asking banks to raise extra capital before offering loans to individuals and businesses.

“It’s a welcome development because it gives us more time,” he said.

“Our intention of course is to use this possibility,” he added, claiming that the move would help ensure “that banks are financing the real economy”. 

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The EU Commission vice-president said Brussels would now “reassess” its policy timetable, adding: “Already now we are readjusting our work programme, postponing certain other work streams, and having an extra year here, of course, is helping.

“We will need to go through now and see exactly what is needed.”

Under the so-called Basel rule changes, banks would have been expected to raise their capitals by as much as 25 percent compared with a June 2018 baseline, leaving a shortfall in total capital of around £113 billion.

The delay means the measure might not be in place until January 2023, with both the EU Parliament and national governments still yet to approve the Commission’s proposal.

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