EU Turns Up the Heat on Budget Hardliners in Fight for Stimulus

European Union leaders are pressurizing Mark Rutte of the Netherlands and a handful of his supporters to drop their opposition to a massive economic stimulus program as summit talks run into a third day in Brussels.

Rutte and allies including Austria and Denmark met with EU Council President Charles Michel on Sunday morning as he pushed for a breakthrough on the critical question of how much of the recovery fund will be available as grants rather than loans.

Germany and France, with the backing of most of the bloc, are insistent that at least 400 billion euros ($460 billion) of the package must be handouts in order to shield the fragile economies of southern Europe from the worst effects of the coronavirus pandemic. Rutte and his fiscally conservative group say that figure must be substantially less.

Michel won’t produce another proposal for the 27 leaders to consider together until he has an informal agreement from the holdouts, a French diplomat said.

“Europe is being blackmailed” by the hawks, Italian Prime Minister Giuseppe Conte said Sunday in a statement released by his office.

With investors already pricing in a deal after a series of bold announcements in recent weeks, leaders are under intense pressure to bridge their differences before financial markets open on Monday. Yet they’ve largely been going around in circles since talks began on Friday morning and as they struggle to bridge the familiar fault lines between the richer North and the southern countries worst affected by the pandemic.

“We simply cannot afford to either appear divided or weak,” Greek Prime Minister Kyriakos Mitsotakis said as he returned to summit venue on Sunday.

Talks had continued into the small hours the previous day but Rutte’s meeting with Germany’s Angela Merkel and Emmanuel Macron of France ended abruptly when their discussion on the issue of grants hit a wall. After several attempts at finding a compromise, Merkel and Macron left the meeting and returned to their hotel together to take stock, the diplomat said.

“They are walking away grumpy,” Rutte told reporters afterward. “A compromise is possible tomorrow but there remain big issues.”

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Rutte and his allies are trying to water down the handouts that the highly indebted South sees as critical for shoring up its finances. While Saturday proved less bad-tempered and more constructive than Friday’s gathering, it was still difficult to discern much progress.

“Until now what we have seen is the commission, the president of the council and the majority of member states making an effort to come closer to four countries,” Portugal’s Antonio Costa said. “They also have to make some effort.”

The 27 leaders are meeting in person for the first time since February, when initial talks over the EU’s seven-year, 1 trillion-euro budget also ran into the buffers. Now, with more than 100,000 Europeans dead from the virus and an economy to rebuild, investors are looking to the group to muster a display of unity to maintain the rally in stocks.

“The will to find a compromise should not make us renounce the legitimate ambitions which we must have,” Macron said Sunday. “In the coming hours we will see if the two are compatible.”

“Things are moving in a fairer direction,” Austrian Chancellor Sebastian Kurz said. “I personally would find it a real shame if it was abandoned.”

The deliberations are proving to be a baptism of fire for Michel, a former Belgian Prime Minister, and European Commission President Ursula von der Leyen, who drew up the original plan. They only took up their jobs in December and have faced criticism from governments over their handling of the pandemic response.

Merkel and Macron have been pressing for an agreement before the summer but haven’t yet been able to bring their weight to bear to force a result. The bloc’s two largest economies are seen as crucial power brokers and they were photographed sitting on a sunny terrace as they searched for a breakthrough.

“We’re entering the third day of talks and it certainly is the decisive one,” Merkel said on Sunday morning. “It’s possible there will be no agreement today.”

— With assistance by Katharina Rosskopf, Diederik Baazil, John Follain, Richard Bravo, Viktoria Dendrinou, Maria Tadeo, Arne Delfs, Jan Bratanic, Jonathan Stearns, Morten Buttler, Boris Groendahl, and Ania Nussbaum

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