BRUSSELS (REUTERS) - A European Union plan to breathe life into economies throttled by the Covid-19 pandemic hung in the balance on Sunday (July 19) as leaders quarrelled over how to carve up a vast recovery fund and what strings to attach for countries it would benefit.
After three days of meetings in Brussels, the 27 EU states were still seeking a compromise on the fund after haggling into the evening over moves designed to help haul Europe out of its deepest recession since World War II.
Diplomats said it was not clear whether they would abandon the summit and try again next month, or plough on through the night.
On the table is a 1.8-trillion-euro (US$2.06-trillion) package for the EU's next long-term budget and recovery fund. The 750 billion euros proposed for the recovery fund would be raised on capital markets by the EU's executive European Commission and funnelled mostly to hard-hit Mediterranean rim countries.
European Central Bank President Christine Lagarde said it would be better for the EU leaders to agree an "ambitious" aid package than to have a quick deal at any cost.
"Ideally, the leaders' agreement should be ambitious in terms of size and composition of the package ... even if it takes a bit more time," she told Reuters.
Lagarde's comments suggested she was relaxed about the possibility of an adverse reaction on financial markets if the summit fails, especially as the ECB has a 1 trillion euro-plus war chest to buy up government debt.
A group of "frugal" wealthy north European states have pushed for a smaller recovery fund and sought to limit how the payouts are split between grants and repayable loans.
The tense talks, though still shorter that an EU summit in the French city of Nice 20 years ago, have underscored the gulf between the EU's north and south.
On Sunday evening, another attempt at reaching a compromise failed. A deal envisaging 400 billion euros in grants - down from a proposed 500 billion euros - was rejected by the thrifty north, which said it saw 350 billion euros as the maximum.
A Dutch proposal for higher budget rebates faced opposition over concerns that these changes would hit the EU's flagship plan to come to net-zero greenhouse gas emissions by 2050.
"The volume of grants is make or break," one diplomat said, as the leaders continued discussions over dinner.
There were also differences over a proposed new rule-of-law mechanism that could freeze funding to countries flouting democratic principles.
Hungary, backed by Poland, has threatened to veto the package if its disbursement is made dependent on meeting conditions on upholding democracy which Luxembourg Prime Minister Xavier Bettel would safeguard democratic values that were the EU's backbone.
"Because Europe is not a grocery where you can choose what you want. Europe is, above all, the values that we protect," he said.
For some, it is a critical moment for nearly 70 years of European integration and failure to agree could fuel doubts about the bloc's viability and unnerve financial markets.
Greek Prime Minister Kyriakos Mitsotakis called for unity, saying the EU could not afford to look "divided or weak".
Italian Prime Minister Giuseppe Conte has accused the Netherlands and its allies - Austria, Sweden, Denmark and Finland - of "blackmail".
Dutch Prime Minister Mark Rutte's position reflects political realities in his country, where voters resent that the Netherlands is, proportionately, among the largest net contributors to the EU budget.
Rutte and his conservative VVD party face a strong challenge from far-right eurosceptic parties in elections next March.