July 19, 2020 / 11:11 AM / 18 days ago

UPDATE 6-EU grapples with "mission impossible" at deadlocked recovery summit

* Michel reminds leaders: world has crossed 600,000 COVID deaths

* Leaders locked in third day of talks, near-record-length summit

* ‘Frugal’ northerners hold out for cuts in grants to worst hit (Recasts with Michel comments)

By John Chalmers and Gabriela Baczynska

BRUSSELS, July 19 (Reuters) - EU leaders stood at an impasse on Sunday after three days of haggling over a plan to revive economies throttled by the COVID-19 pandemic, but the chairman of their near-record-length summit urged them to make one last push on “mission impossible”.

Charles Michel reminded the 27 leaders of the European Union over dinner in Brussels that more than 600,000 people had now died as a result of the coronavirus around the world, and said it was up to them to stand together in the face of an unprecedented crisis.

“My hope is that we reach an agreement and that the headline ... tomorrow is that the EU has accomplished mission impossible,” he said. “That is my heartfelt wish ... after three days of non-stop work.”

The leaders are at odds over how to carve up a vast recovery fund designed to help haul Europe out of its deepest recession since World War Two, and what strings to attach for countries it would benefit.

Diplomats said it was possible that they would abandon the summit and try again for an agreement next month.

On the table is a 1.8-trillion-euro ($2.06-trillion) package for the EU’s next long-term budget and recovery fund.

The 750 billion euros proposed for the recovery fund would be raised on behalf of them all on capital markets by the EU’s executive European Commission, which would be a historic step towards greater integration, and then funnelled mostly to hard-hit Mediterranean rim countries.

BETTER AMBITIOUS THAN HURRIED

European Central Bank (ECB) President Christine Lagarde said it would be better for the leaders to agree an “ambitious” aid package than to have a quick deal at any cost.

“Ideally, the leaders’ agreement should be ambitious in terms of size and composition of the package ... even if it takes a bit more time,” she told Reuters.

Lagarde’s comments suggested she was relaxed about the possibility of an adverse reaction on financial markets if the summit fails, especially as the ECB has a 1 trillion euro-plus war chest to buy up government debt.

A group of “frugal” wealthy north European states pushed during the summit for a smaller recovery fund and sought to limit how payouts are split between grants and repayable loans.

The tense talks, though still shorter that an EU summit in the French city of Nice 20 years ago, underscored the gulf between the EU’s north and south.

Italian Prime Minister Giuseppe Conte accused the Netherlands and its allies — Austria, Sweden, Denmark and Finland — of “blackmail”.

Dutch Prime Minister Mark Rutte’s position reflects political realities in his country, where voters resent that the Netherlands is, proportionately, among the largest net contributors to the EU budget.

He and his conservative VVD party face a strong challenge from far-right eurosceptic parties in elections next March.

On Sunday evening, another attempt at reaching a compromise failed. A deal envisaging 400 billion euros in grants - down from a proposed 500 billion euros - was rejected by the north, which said it saw 350 billion euros as the maximum.

There were also differences over a proposed new rule-of-law mechanism that could freeze funding to countries flouting democratic principles. Hungary, backed by Poland, threatened to veto the package if its disbursement was made dependent on meeting conditions on upholding the rule of law.

For some, the summit was a critical moment for nearly 70 years of European integration, and failure to agree could unnerve financial markets and fuel doubts about the bloc’s viability. ($1 = 0.8752 euros)

Additional reporting by Kate Abnett, Marine Strauss, Tom Sims, Bart Meijer, Toby Sterling, Jan Lopatka, Marton Dunai, Balazs Koranyi, Andreas Rinke and Jessica Jones, Writing by John Chalmers and Gabirela Baczynska Editing by Timothy Heritage and Sonya Hepinstall

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