Germany's Merkel warns of summit failure on EU coronavirus recovery fund

European Union leaders toiled in search of a coronavirus stimulus deal for a third day on Sunday but German Chancellor Angela Merkel said that the mounting acrimony over the level of spending might not easily be overcome.

Germany and France, the EU's powerbrokers, are seeking a deal on a 1.8 trillion euro ($2.8 trillion Cdn) economic recovery package to rescue the bloc's economies that are facing their worst recession since the Second World War.

Sticking points are the size of the new recovery fund and what proportion should be in grants and loans, with some "frugal" richer states led by the Netherlands pushing to limit it, underscoring the depth of the EU's north-south split.

Separately, the summit faces difficulties in agreeing the scale of EU budget rebates for richer countries, as well as a dispute over a proposed new rule of law mechanism, which could freeze EU funding to countries flouting democratic principles.

Greece's Prime Minister Kyriakos Mitsotakis, whose country was only just recovering from its 10-year debt crisis when the pandemic hit, made a plea for unity, saying the EU could not afford to look "divided or weak."

"I sincerely hope that today we can break the deadlock," he told reporters as he arrived at the Europa building in Brussels.

Leaders wearing face masks have called the summit a 'make-or-break' moment for nearly 70 years of European integration and failure to agree amid an unprecedented health and economic crisis would raise serious questions about the viability of the bloc, officials and experts say.

"There is a lot of goodwill, but also many positions. I will make every effort but it is possible that there is no result," Merkel said.

Speculation was rife among EU diplomats that talks could run into Monday and Hungarian Prime Minister Viktor Orban said he was willing to stay in Brussels all week, but another summit later in July was more likely in the event of no deal.

With consultations going on, the formal start of the summit plenary with all 27 leaders was delayed indefinitely.

Political bickering

Late on Saturday, Merkel and French President Emmanuel Macron left the day's final stretch of informal talks early, refusing to accept that the level of free grants to ailing economies in the package fall below 400 billion euros ($620.5 billion Cdn).

Italian Prime Minister Giuseppe Conte had earlier accused the Netherlands and its allies Austria, Sweden, Denmark and Finland of "blackmail." Stockholm proposes to cut grants to 155 billion euros ($240 billion Cdn).

Macron said there was a willingness to compromise, but it should not deter "from the legitimate ambition that we need to have," referring to the level of money available in the planned 750 billion euros ($1.1 trillion Cdn) recovery fund, which is to be funded by money raised on capital markets.

Dutch Prime Minister Mark Rutte, who faces parliamentary elections by March 2021, was frank about the divisions with France and Germany on Saturday night. "They walked away annoyed," Rutte said of Merkel and Macron.

Meanwhile, Hungary, backed by its eurosceptic ally Poland, has threatened to veto the package over the rule of law mechanism, supported by the Dutch.

Orban said Rutte had a personal grudge against him. Rutte's office was not immediately available for comment.

"I don't know what is the personal reason for the Dutch prime minister to hate me or Hungary, but he is attacking so harshly ... I don't like blame games but the Dutchman is the real responsible man for the whole mess," Orban told reporters.