EU leaders back together but divided over revival plan

(FILES) In this file photo taken on July 8, 2020 German Chancellor Angela Merkel attends a plenary session at the European Parliament in Brussels upon the presentation of the German programme for EU presidency. The heads of state and government of the 27 member states of the European Union meet on July 17, 2020 in Brussels at a crucial summit for the revival of the economy of the Old Continent, hit hard by the pandemic of coronavirus.(YVES HERMAN / POOL / AFP)

Germany's Chancellor Angela Merkel turns 66 on the day that she and her 26 colleagues return to Brussels, not to celebrate but to test whether in-person negotiations can answer a 750-billion-euro question.

The EU has been plunged into a historic economic crunch by the coronavirus crisis, and EU officials have drawn up plans for a huge stimulus package to lead their countries out of lockdown.

But a determined band of northern capitals, led by Prime Minister Mark Rutte's Netherlands, are holding out against doling out cash to their southern neighbours without strict conditions attached.

Friday's talks are expected to run into Saturday and perhaps even Sunday, but few here are confident of a breakthrough, despite the tight timetable, so another summit may well follow later this month.

- 'A deal is essential' -

Summit host Charles Michel, the president of the European Council, has tried to create a sense of momentum after previous coronavirus-era videoconferences served only to underline the leaders' differences.

"Finding agreement will require hard work and political will on the part of all. Now is the time. A deal is essential," he wrote in his letter inviting the leaders back to Brussels.

"We will need to find workable solutions and come to an agreement, for the greater benefit of our citizens."

But optimism was in short supply as the leaders gathered in the Belgian capital, some arriving early on the eve of the summit to hold private discussions ahead of the main event.

European diplomats said the Netherlands would continue to insist that member states retain the right to veto any joint borrowing by the European Union to finance loans to members.

And they want any loans or grants to come with strict conditions attached to ensure that heavily-indebted countries like Spain and Italy carry out reforms, under European Commission oversight.

This is furiously opposed by the south. Both Michel and Merkel, whose country has just taken on the rolling six-month presidency of the EU, will struggle to broker any compromise.

"We're open to reaching an arrangement this weekend, but if there won't be an agreement we are open to more negotiations later on," Dutch foreign minister Stef Blok said on Wednesday.

- Loans or grants? -

The Netherlands has emerged as the most likely hold out, but Rutte's position is backed to varying degrees by fellow members of the so-called "Frugal Four" -- Sweden, Denmark and Austria.

Michel's draft plan foresees a 750-billion-euro (850-billion-dollar) recovery package, made up of 250 billion in loans and 500 billion in grants and subsidies that would not have to be repaid by the recipient member states.

The Frugals oppose grants, and want any loans to come with conditions attached.

This package is in addition to the planned 1,074-billion-euro seven-year EU budget from 2021 to 2027 that the leaders must also agree in the coming weeks or months.

"An agreement is not at all guaranteed. On the contrary, there remain large differences to get over," a senior European official admitted.

Aside from the governance of the recovery package, the leaders may also clash over efforts to make EU budget support contingent on member states respecting the rule of law.

Hungary and Poland, which have been targeted by the European Commission over their alleged drift into authoritarianism, will fight to stop such a rule being written into the budget.