EU leaders wrangled over the size and rules of their huge post-coronavirus economic recovery plan Saturday, seeking to overcome fierce resistance from the Netherlands and its "frugal" friends in a second day of intense debate.
European Council president Charles Michel proposed a fresh plan after his initial blueprint for a 750-billion-euro ($850 billion) package ran into stiff resistance from the richer northern member states.
"There's a very tough battle in the offing," a senior diplomatic source told AFP, predicting the marathon talks would take at least 12 more hours, stretching into early Sunday and could then still fail.
Dutch Prime Minister Mark Rutte has insisted member states retain final approval of EU funding -- an effective veto -- for national recovery plans for the likes of Spain and Italy, whose economies were ravaged by the virus and its lockdowns.
He says EU oversight is necessary to oblige countries to reform their labour markets to make them better able to cope with future crises.
In a concession to Rutte's demands, Michel's new plan includes a "super emergency brake" that gives any country a three-day window to trigger a review by all member states of another's spending plans.
An official from a non-frugal state insisted that this does not amount to a right of veto, but admitted that it remains to be seen whether countries such as Spain and Italy will accept the compromise.
Meanwhile, a European source said the frugal countries were still not happy with the broader package and were seeking more cuts.
"There are many more issues to solve but the proposal on governance as put forward by Michel is a serious step in the right direction," a Dutch diplomat said, but warned "many issues remain".
Maltese Prime Minister Robert Abela told journalists that discussions on the COVID recovery fund on Friday had begun positively, they had degenerated over the course of day. By Saturday, he said, the hurdles had become insurmountable.
"We must ensure that we can reach an agreement that is satisfactory to our country, despite the criteria for both the European Budget and the Recovery Fund using our country's success against us," Abela said.
Right of veto
Before talks with all 27 leaders restarted, Michel held a roundtable with Rutte, German Chancellor Angela Merkel, French President Emmanuel Macron and the Italian and Spanish PMs to test out his new proposal. After brief session with all 27 members, they broke off again for more consultations.
The leaders of some smaller countries -- Belgium, Estonia, Luxembourg and Malta -- left the venue to enjoy drinks and chips on a sunny square -- while France, Germany, Italy and Spain faced off against the Frugals.
Michel's new proposal would keep the total recovery budget at 750 million euros, but shift the balance slightly from grants -- down from 500 million to 450 million -- to loans, which rise from 250 million to 300 million, according to a document seen by AFP.
The leaders of some smaller countries -- Belgium, Estonia, Luxembourg and Malta -- left the venue to enjoy drinks and chips on a sunny square
While Rutte was alone in his hard line on the need for unanimous approval of grants, Austria also raised objections.
"The ratio of grants versus loans simply has to be different," Chancellor Sebastian Kurz told reporters, though he said talks were moving in the right direction.
As a further sweetener for Austria, the Netherlands and the other "frugals" -- Sweden and Denmark -- Michel's new plan sees a hike in the rebates they get on their EU contributions.
"That's not quite enough for us. We want a bit more, but the direction is a good one," Kurz said
'Zero grants'
But more problems lie ahead. A European diplomat told AFP if the member states agree on the volume of plan, "then I am quite optimistic".
European Council President Charles Michel (2nd L), German Chancellor Angela Merkel (3rd R), French President Emmanuel Macron (2nd R), and European Commission President Ursula von der Leyen (R) meet on the sidelines of the EU summit. Photo: Francisco Seco/Pool/AFP.But the diplomat warned that the frugals would not be content with reducing the amount of grants to 450 billion euros and would push for more to become loans, subject to repayment. "They wanted zero grants," he said.
What EU officials call the "Rule of Law" issue will also be a stumbling block. Hungary's Prime Minister Viktor Orban could yet veto any attempt to tie budget funds to states upholding European legal standards.
"No political pre-conditions can be accepted," said Zoltan Kovacs, a spokesman for Orban said.
And the rescue package is in addition to the planned seven-year EU budget -- worth more than one trillion euros -- that the leaders must also discuss if and when they agree the rescue package.