European Council President Charles Michel, center left, conferred Saturday with German Chancellor Angela Merkel, in blue jacket, and French President Emmanuel Macron, seated next to her.
Photo: Francisco Seco/Associated PressBRUSSELS—Talks among European Union leaders on a €1.8 trillion ($2 trillion) economic recovery package will stretch into a third day on Sunday, with the bloc’s 27 governments still at loggerheads on key parts of the plan.
Officials involved in the talks, the first physical meeting of EU leaders since Europe’s coronavirus crisis began, said that negotiations Friday and Saturday had narrowed gaps on some issues and that a deal remained possible. Major differences, however, remained on key subjects, including the amount of grants that would be handed out to struggling national governments as part of an economic recovery fund.
European Council President Charles Michel’s spokesman said on Twitter late Saturday that leaders would reconvene at midday local time on Sunday.
“The deliberations are at an important stage. It cannot yet be said whether there will be a solution tomorrow,” said a German diplomat. “But it is worth continuing the work, because there is a broad readiness among the Member States to find a solution.”
Leaders must agree on two huge, politically sensitive programs. One is the EU’s regular seven-year budget, due to run from next year to 2027, with Brussels proposing more than €1 trillion in spending.
The second is a special coronavirus-recovery fund, pitched at €750 billion by Brussels. Its most controversial element is a proposal for the EU’s executive arm to raise debt in bond markets to fund €500 billion in grants to member states and €250 billion in loans.
The recovery plan aims to focus EU funds on the nations hardest hit by the coronavirus, especially in the bloc’s southern nations. By assuring them of massive economic assistance beginning next year, officials hope countries including Italy, Spain and Greece can boost spending now without worrying about sending their already high debt burdens to unsustainable levels.
Timing is critical. Delaying too long will crimp those countries’ crisis spending. Projects in the EU budget—from building bridges to subsidizing the EU’s push to reduce greenhouse-gas emissions—won’t begin next year unless a deal is struck soon.
Leading the push for an ambitious deal were German Chancellor Angela Merkel and French President Emmanuel Macron, who worked around the clock with senior Brussels officials Friday and Saturday to reach an agreement. Mr. Macron had ordered his plane to be on standby for a late Saturday evening departure “just in case,” said a French diplomat.
But the grants-based recovery fund faced major resistance from a group of fiscally conservative countries, led by the Netherlands, which were pushing for the handouts to national governments to be cut by as much as half. The other countries include Denmark, Austria, Finland and Sweden.
After tense discussions Friday evening, which some officials said almost led to a breakdown in talks, Mr. Michel presented new proposals Saturday morning, cutting the suggested amount of grants in the recovery fund to €450 billion.
Mr. Michel also worked to bring the Netherlands on board, pitching a proposal to allow any country to hold up handouts if they felt a recipient government’s economic reforms agenda wasn’t advancing. A Dutch diplomat said the offer was “a serious step in the right direction.”
Yet on Saturday evening, as leaders ate a dinner of chicken, leek pancakes and peach soup, none of these issues was resolved and others were still outstanding. Pending issues included the eventual size of the seven-year budget and a proposed link between democratic standards and budget money, which was being opposed by Hungary and other Eastern European countries.
After Saturday night’s dinner, Ms. Merkel, Mr. Macron and Mr. Michel met with the leaders of the Dutch-led group to try to eke out a compromise on the grants, a French source said. The initiative failed, the diplomat said, with the French and German leaders refusing to accept demands from the others to cut the amount of grants in the recovery plan below €400 billion.
EU Budget Commissioner Johannes Hahn, who was participating in the talks, said Saturday on Twitter: “Amidst all discussions about who gets what under which conditions, just a solemn reminder: the Corona crisis is not over: infections on the rise in many countries. High time to reach an agreement.”
Approval for the two programs requires assent from all 27 countries.
With nearly all EU countries plunged into a profound recession by the spring’s virus lockdowns, tensions between wealthy northern countries and struggling southern ones flared earlier this year, with warnings from several leaders that the seven-decade-old bloc could collapse under the strain.
While the virus situation is much improved and economies reopened, senior French and German officials have warned that countries will be hit later this year by a wave of layoffs and debt that could fuel populism. France and Germany were the first to unite on a huge recovery plan, suggesting a €500 billion proposal made up entirely of grants.
Simply holding a summit has required elaborate planning to ensure it doesn’t turn into a coronavirus superspreading event. Reporters are being excluded. Leaders wore masks on the way in, and Mr. Michel ensured social-distancing rules would be respected—blocking out a huge meeting room built to accommodate 300 people for the 27 national leaders and a few senior EU officials.
To minimize virus risks, many of the side discussions took place in an open-air terrace where bottles of mineral water were interspersed with hand sanitizer. Doctors were on site.
Write to Laurence Norman at laurence.norman@wsj.com
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