EU summit continues on Sunday after failure to reach agreement on recovery

The heads of state and government of the European Union (EU) failed to reach an agreement on Saturday on the economic recovery plan after the coronavirus pandemic, so they will continue negotiating on Sunday, one day more than expected, to try to reach a consensus.

At the end of the second day of a summit that began on Friday, the stumbling blocks in the negotiations remain the size of the recovery fund and the balance between grants and loans, the conditions for approving aid and the discounts that some countries receive in their contribution to the EU budget, according to several diplomatic sources.

The lines dividing the 27 have not moved substantially and the concessions proposed by the President of the European Council, Charles Michel, to overcome the opposition of the self-styled frugals' - Holland, Austria, Sweden and Denmark - do not convince these countries, which are demanding more cuts to the plan and more control over aid.

The president of the European Council has finally decided to convene the leaders again this Sunday at 12:00 noon (10:00 GMT) for a third day of negotiations that were not scheduled, but that no one ruled out given the interest of most countries to close a deal in July.

"It is proving more difficult than initially anticipated (...). We are facing a tough fight with the Netherlands and the other frugals," warned Italian Prime Minister Giuseppe Conte in a mid-afternoon video on social networks.

The Spanish delegation denied that the negotiations had stalled, but admitted that they were being tough.

The talks began at 11am (09:00 GMT) with a new proposal by Michel to bring positions closer together and were held through bilateral meetings or with small groups of leaders until 9pm (19:00 GMT), when the 27 met again for a working dinner.

The initial plan was to keep the size of the recovery fund at 750 billion euros, but cut grants by 50 billion euros, to 450 billion euros, and add them to the loans, which would thus amount to 300 billion.

325 billion, the Recovery and Resilience Facility, the core of the fund to finance reforms and investments in the most affected countries, such as Spain and Italy.

In an attempt to win the support of the Netherlands, which alone defends the right to veto any reforms or investments that the fund's beneficiaries wish to make, Michel proposed introducing the so-called "emergency brake".

This would allow that if any state has reservations about a plan it can ask within three days for approval to be frozen until the Council (the countries) addresses the issue and gives the green light.

Furthermore, Michel's proposal not only maintains the discounts that the frugal ones have, along with Germany, in their contribution to the budget for contributing more than they receive, but also proposes increasing those of Austria, Sweden and Denmark.

Several Member States considered the proposed changes to be helpful in forging a compromise, with the Netherlands and Austria pointing out that they go in the right direction, although they are insufficient.

The four austere countries are still calling for a reduction in the volume of subsidies and for a monitoring system to ensure that the money is used for the agreed reforms, if the Netherlands remains isolated when it comes to claiming the right of veto, according to several sources. The frugals also want to further increase their rebates on the budget contribution.

On the opposite side, Spain, France and Germany, along with other countries, are demanding that the total volume of the fund be kept at 750 billion euros and that a significant proportion be in the form of subsidies.

Spain would be willing to accept some cuts in the level of direct transfers (maintaining the total fund) and the "emergency brake", as long as the final decision on aid is not taken unanimously, but only if the final result of the package is in its interest, the government explains.

This package will also include the Community budget for 2021-2027, although this paragraph has received less attention in this Saturday's negotiations.

The thorny issue of linking the receipt of funds to respect for the rule of law, which is of particular concern to Hungary, was not discussed in depth during the afternoon, according to diplomatic sources.