EU leaders back for day two of recovery fund talks amid deep division

EU leaders are to meet for further talks on a planned shared multi-billion-euro rescue package for their virus-ravaged economies on Saturday, after a meeting ran late into the previous evening but ended without a deal.

With the 27 countries at odds on a host of issues including the overall size of the recovery fund, the criteria used to distribute the money and how to supervise expenditure, reaching agreement at the summit is far from guaranteed.

The leaders spent Friday discussing a proposal put forward by European Council President Charles Michel that outlines a 750-billion-euro (855-billion-dollar) recovery fund and a 1,074-trillion-euro long-term budget for 2021-2027.

For the recovery fund, 500 billion euros would be paid out as grants and 250 billion euros in loans.

Adjusting a previous concept from the European Commission that was heavily weighted towards member states' unemployment rates, Michel suggested allocating 30 per cent of the funds according to the impact of the economic crisis.

A difficult moment

Negotiations on this proposal were at a "difficult moment" shortly before talks ended, according to a diplomatic source, with progress blocked by the thorny question of governance on the recovery plan.

The Netherlands, backed by Sweden, Austria and Denmark, insist on a low-as-possible share of grants, and are pushing for economic reform conditions to be tied to the money as well as strong oversight on expenditure.

However, a number of states are wary about excessively strenuous approval processes that could see a delay to funds being paid out.

Meanwhile, Hungary and Poland object to a proposal to embed a mechanism to withhold EU funds in the case of rule-of-law violations, which is designed to target their democratic backsliding.