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EU's Michel offers please-all recovery plan ahead of tense summit

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BRUSSELS (Reuters) - European Council President Charles Michel on Friday offered concessions to countries across the EU on their long-term budget and economic stimulus plan in a bid to bridge gaps before national leaders haggle next week over coronavirus recovery.

With the EU economies in free fall due to the pandemic, Michel will chair the first face-to-face talks of the 27 European Union heads since lockdowns took hold in March and feuds over how to tackle coronavirus divided the bloc.

“The COVID-19 crisis presents Europe with a challenge of historic proportions,” Michel said. “We are slowly exiting the acute health crisis... the emphasis is now shifting to mitigating the socio-economic damage.”

Hoping to bridge divisions over how to revive economic growth between the wealthy, thrifty north and the high-debt south hit harder by COVID-19, he proposed a smaller next joint EU budget for 2021-27 than previously envisaged, an attempt to make the mass stimulus scheme more palatable to the frugals.

He proposed a long-term EU budget of 1.074 trillion euros and a recovery fund of 750 billion euros for pandemic-hammered economies, with two-thirds in free grants and a third in repayable loans.

The COVID-19 pandemic is the latest big challenge for the EU after it struggled with a debt crisis a decade ago, chaotic mass immigration, and then the trauma of Brexit.

Some have even framed it as existential for the bloc, saying it cannot be seen to fail this time as eurosceptic feeling mounts in countries such as Italy.

Michel proposed maintaining the so-called rebates that wealthier countries receive on their budget contributions and, in a couched reference to Poland, Hungary and others, said funding would be conditional on respect for the rule of law.

Hungarian Prime Minister Viktor Orban - who stands accused of undercutting democracy at home - swiftly said Budapest could veto the plan if money came with strings attached.

Orban’s comments set the stage for intense arm-twisting at the EU summit on July 17-18, though Olaf Sholz - the finance minister of Germany, which now holds the bloc’s presidency - voiced optimism that the leaders will get a deal.

An EU diplomat called the plan “a good basis” for negotiations but cautioned “not everyone will agree on everything”.

COMPLEX BUT CRITICAL

Michel proposed allocating most of the recovery funds to debt-burdened countries in the south like Italy and Greece, but also to channel EU funds to combat climate change.

The proposal for the seven-year budget is known in Brussels jargon as the “negotiating box”, a complex set of numbers covering spending on areas from support for agriculture to regional development, research and scholarships.

EU summits that involve money are always the most fraught and agreeing on the budgets is an arcane process in which member states are trying to trade concessions in one area against benefits in the other.

Even before the pandemic, which sent the euro zone’s economy into its worst-ever recession forecast at 8.7% this year, the bloc’s joint coffers were already short due to Brexit. Michel on Friday proposed a new, 5-billion-euro fund to mitigate disruptions in member states from 2021.

Further highlighting how long the road ahead was to agreement, which will have to be ratified by the European Parliament and some national assemblies, a European lawmaker served warning that Michel’s proposal fell short.

“A smaller MFF will jeopardise EU support to our researchers & students. It will prevent us from tackling climate change or improving citizens’ security,” Siegfried Muresan said, adding the parliament could not accept an overall budget below earlier plans.

Writing by John Chalmers, Editing by William Maclean

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