EU extends summit until Sunday after deadlock over COVID recovery plan

BRUSSELS (Reuters) – European Union leaders failed to agree on a massive stimulus fund to revive their coronavirus-affected economies on Saturday after two days of tense negotiations, but extended their summit for another day to try to overcome their differences.

When the 27 leaders returned to their hotels after a late and unfinished dinner, German Chancellor Angela Merkel and French President Emmanuel Macron stayed at EU headquarters in Brussels to haggle with the Dutch-led camp of saver countries that they demanded cuts to the 1.8 billion euro package.

“The negotiations were heated,” said Italian Prime Minister Giuseppe Conte, one of the EU countries most affected by the coronavirus crisis, seeking generous help from the bloc. “Europe is under the blackmail of the ‘frugal’.”

“We have to do everything possible to reach an agreement tomorrow. More delays are of no use to anyone. ”

Summit President Charles Michel was due to present new proposals before the 27 meet at noon (1000 GMT) on Sunday.

With the pandemic facing Europe with its worst economic shock since World War II, leaders first locked their horns on Friday over a proposed € 750bn ($ 856bn) recovery fund and an EU budget by 2021-27 of more than 1 billion euros.

But a group of wealthy and fiscally “frugal” northern states (the Netherlands, Austria, Denmark and Sweden) blocked progress at the EU’s first face-to-face summit since spring blockades across the continent.

They favor repayable loans instead of free donations for the most affected indebted economies, mainly on the edge of the Mediterranean, and they want tighter control over how funds are spent.

Hopes for a deal grew earlier Saturday when Michel proposed revisions to the comprehensive package designed to allay Dutch concerns.

Under his new plan, the portion of the grants in the recovery fund would be reduced to € 450 billion from € 500 billion and an ’emergency brake’ would be added to the disbursement.

But hopes that this is enough were quickly dashed as Sweden requested that subsidies be reduced to € 155 billion, according to diplomatic sources. Some pointed out that the recovery scheme would run the risk of being irrelevant on that very small scale.

Conte also said that a de facto veto on national aid requests requested by The Hague was “politically and legally inadequate and largely unworkable.”

“HIGH TIME”

The bloc executive’s budget commissioner reminded the leaders, who wore masks and kept away from each other, that COVID-19 was still among them and that they had to act.

“Just a solemn reminder: The Corona crisis is not over: infections are on the rise in many countries,” Johannes Hahn tweeted. “It is time to reach an agreement that allows us to provide the urgently needed support for our citizens and economies!”

Diplomats said the “frugal” also lobbied during the day for more discounts for net taxpayers in the EU’s central budget, among other demands.

Other countries had their own demands in the negotiations intersecting different regional and economic priorities, casting doubt on an unprecedented act of solidarity for the EU under which the executive European Commission would borrow billions of euros in capital markets on behalf of all of them.

The exact size of the EU’s long-term budget and to what extent to use payments as leverage for reforms, or whether to withhold money from countries that do not meet democratic standards, were not resolved when the leaders left on Saturday.

Backed by its Eurosceptic and nationalist ally Poland, Hungary has threatened to veto the entire package over a new mechanism planned to freeze countries mocking democracy.

The EU is already grappling with the long-running saga of Britain’s exit from the bloc and has been hit by past crises, from the 2008 financial crisis to migration disputes.

Another economic shock could expose him to more Eurosceptic, nationalist and protectionist forces, and weaken his position against China, the United States or Russia. ($ 1 = 0.87 euros)