European Union leaders have extended their summit by an extra day in the hope they are finally closing in on a deal for an unprecedented €1.85 trillion EU budget and coronavirus recovery fund.

A deal is still far off but several key nations said negotiations were at least heading in the right direction despite anxieties that were running high after months of battling the pandemic.

Heading into a balmy summer night, those tensions were showing when German Chancellor Angela Merkel and French President Emmanuel Macron got up and walked out of a meeting with the so-called Frugal Four group of wealthy northern nations that want to limit grants and impose strict conditions on mostly southern nations that have suffered most from the pandemic.

“A few people ran off,” acknowledged Dutch prime minister Mark Rutte, who is considered the leader of the Frugals.

When asked if it was Mrs Merkel and Mr Macron, he said: “Yes, precisely. So we didn’t get a breakthrough tonight.”

The Franco-German alliance is seen as key to any major deal within the 27-nation EU.

When asked what he thought, Mr Rutte said: “They run off in a bad mood. We will continue tomorrow.”

It was typical of two full days and almost two full nights of discussions by EU leaders, oscillating between raw irritation over how the huge sums should be spent and what strings should be attached and a glimmer of hope that somehow a deal could materialise – if not this weekend, then at least within a few weeks.

“Things are moving in the right direction,” said Austrian chancellor Sebastian Kurz.

“It is of course, as you would expect, a tough struggle, a tough negotiation, but we’re moving in the right direction, and that is the most important thing.”

Mr Rutte showed some hope too.

“The fact that we continue talking shows we all have optimism. But if we will succeed, we have to wait and see.”

The leaders are dealing with their toughest crisis in years, one that has burdened the bloc with its worst recession ever.

The pandemic has sent the EU into a tailspin and around 135,000 of its citizens have died with Covid-19.

The EU executive has proposed a €750 billion fund, partly based on common borrowing, to be sent as loans and grants to the most needy countries.

That comes on top of the seven-year, €1 trillion EU budget that leaders were fighting over even before the virus hit their continent.

Despite the urgency and seriousness of the crisis, there were deep rifts between some richer nations in the north, led by the Netherlands, which want strict controls on spending, and struggling southern nations such as Spain and Italy, which have been especially hard-hit by the pandemic and are looking for as much help as they can get.

European Council president Charles Michel’s latest proposals reduced the proportion of grants in the rescue package and raised the proportion of loans that would have to be paid back, in an apparent enticement for the Frugals.

But the issue of how to track the rescue money remained the key sticking point, Mr Rutte said.

Mr Michel proposed a measure that would stop short of allowing any country a veto on how governments spend the money and Mr Rutte said that was still up for discussion on Sunday.

Mr Kurz said major issues still under discussion include linking rule of law guarantees in EU nations to the allocation of funds to member states.

Hungary has threatened to veto any such move.

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