ANALYSIS: EU COUNCIL SUMMIT; leaders remain at loggerheads over the Recovery Fund internals; Frugals further move red line on grants, France sees a path to a deal; EU27 to reconvene at 16:00CEST/15:00BST [UPDATE/REPOST]

Analysis details (05:23)

* THE LATEST: EU leaders remain deadlocked over the internals of the proposed Recovery Fund after the meeting, initially scheduled for two days, ran into a fourth day. However, Frugal Member Denmark said it is ready to accept the latest recovery fund proposal (see below), whilst officials said cracks are appearing on the Frugal font, with Netherlands and Austria the main remaining resistance. Frugal members now see EUR 390bln (Prev. EUR 375bln) as the red line for grants in the Recovery Fund, but they need southern Europe and France to meet them halfway, according to FT's Khan – a move French President Macron originally opposed, although an official stated that France sees a path towards a deal. The number is still below the EUR 400bln France and Southern states are pushing for, but the Frugals have further softened their stance from the initial EUR 350bln red line. As talks were halted for a break, more reports noted that hardliners (Frugals) are reportedly prepared to accept the EUR 390bln in grants, according to Officials. However, FT’s Khan suggests that the Frugals' willingness to accept the EUR 390bln figure will be subject to the group pushing for additional rebates in budget talks. Some EU officials interpreting the plenary session as positive news as leaders previously indicated that they would not gather together again unless there was some agreement on the size of the fund and the grants/loans ratio. However, the plenary saw a rather abrupt ending, with the European Council spokesperson stating that EU27 will reconvene at 16:00CEST/15:00BST

*FRUGALS’ STANCE ON GRANTS: European Council President Michel came up with a new proposal in a bid to narrow the gap differences between the north and the south, namely with the Frugals in mind: Netherlands, Austria, Denmark, Sweden, and Finland. To address their worries, the Council President initially proposed tweaking the grants/loans ratio so that the Fund will comprise of EUR 450bln in grants (Prev. EUR 500bln) and EUR 300bln in loans (Prev. EUR 250bln), although later reports suggest the size of grants will be cut to EUR 400bln and the loans share will be raised to EUR 350bln, however, officials have stated that leaders are no closer to a deal. The Frugals initially pushed for the grants number to be decreased to EUR 350bln. A French diplomatic source stated that French President Macron and German Chancellor Merkel have pushed back against pressure by the Dutch PM and his allies to cut grants to below EUR 400bln. Some diplomats predict that the final compromise will see a grants number above EUR 350bln as southern Europe push for a number above EUR 400bln. ECB President Lagarde stated it is better for EU leaders to agree on an ambitious package as opposed to reaching a quick deal under any costs. As mentioned above, recent reports are now guiding markets towards an eventual outcome that would see grants at around EUR 390bln (subject to conditions). 

*HUNGARY, ANOTHER STUMBLING BLOCK: Another hurdle emerged from the summit as Hungarian PM Orban blamed the Dutch PM for the deadlock at the summit and threatened to veto a compromise that tied the distribution of the aid to respect for the “rule of law”. The measure was also opposed by Slovenia and Poland as they rejected a draft plan that would require a qualified majority to back cash sanctions. Larger EU member states have been calling for a stringent system under which cash will be withheld for governments that breach fundamental EU rights. Some stated that Hungary and Poland’s stance is a way to extract more cash in a final compromise. Meanwhile, others have suggested that the “rule of law” can may get kicked down the road, but this would anger many, according to RTE’s Connelly.

*NEXT POTENTIAL MEETING DATE: In terms of a next meeting day, sources via RTE’s Connelly suggested another meeting potentially next weekend or on July 31st, whilst it is safe to assume that negotiations will occur in the run-up, and another compromise deal could also be released. An end-August meeting date is also reportedly earmarked. 

20 Jul 2020 - 09:03- EquitiesImportant- Source: newsquawk