This Monday, EU leaders finally reached an agreement for a historic €1.82 trillion seven-year budget, including a €750 billion recovery fund with grants and loans, after a lengthy negotiation.

“At first glance, their disagreements revolved around money: the size of the recovery fund and the balance between grants and loans.”

The “frugal five” — Netherlands, Austria, Sweden, Denmark, and Finland — asked for a smaller recovery package with fewer grants and more restrictions, while countries hit-hardest by the coronavirus, mostly around the Mediterranean, hoped to secure the package to boost their economies.

The figure of grants was eventually brought down from the original €500 billion that Merkel and Macron hoped, to €390 billion.

“But the negotiation they had was about more than just money. There were problems regarding political sovereignty.”

The frugal five wanted more restrictions and control over the grants and loans that will be given out. To those hit hardest by the coronavirus, these restrictions and controls greatly impeded their ability to self-govern.

On one hand, the frugal five asked that the recovery fund be tied with economic reforms. Their demand was that the countries that were most likely be receiving grants, namely the countries surrounding the Mediterranean, restructure their economies by undergoing austerity measures.

On the other hand, the Dutch Prime Minister also wanted to link the recovery fund to “rule of law,” in other words, democratic values. For years, the EU has attempted to get certain nation-states — specifically, formerly communist European states — to respect basic principles such as freedom of press and judicial independence. The proposal was to cut funding on countries that breached the “rule of law.” Hungary felt especially targeted, claiming that the ambiguous rules are not European values, but political demands from destructive elites. However, the EU’s Justice Commissioner was optimistic that a deal will be reached on the rule of law package.

“The compromise decision was that the total €750 recovery fund, which includes €360 loans and €390 grants, will be tied to both economic reforms and "the rule of law".”

July 20th was a significant day for Europe. Not only did they come together with one of the largest budgets, but it was also the first time ever that the EU loaned money to countries in the form of grants.

But this is just the start. To quote European Commission President Ursula von der Leyen, “Important steps remain. First and most important: to gain the support of the European Parliament. Nobody should take our European Union for granted. It is our common responsibility to deliver.”

This article was written byCinny Lin currently based in Taipei. Please send an email to[email protected]to get in touch.Photo Credit: Stephanie Lococq / AP Photo