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EU leaders say progress in virus recovery summit, but warn talks could still fail

* Austria, Netherlands say progress made in talks

* Michel urges agreement on "mission impossible"

* Leaders locked in third day of talks

* 'Frugal' northerners hold out for cuts in grants (Updates with quotes from Austrian, Dutch leaders on talks)


French President Emmanuel Macron and German Chancellor Angela Merkel during a round table meeting in Brussels (John Thys, Pool Photo via AP)

French President Emmanuel Macron and German Chancellor Angela Merkel during a round table meeting in Brussels (John Thys, Pool Photo via AP)

French President Emmanuel Macron and German Chancellor Angela Merkel during a round table meeting in Brussels (John Thys, Pool Photo via AP)

EU leaders were making progress on Monday after three days of haggling over a plan to revive economies throttled by the COVID-19 pandemic, but Dutch Prime Minister Mark Rutte warned the discussions could still fall apart.

EU summit chairman Charles Michel urged the 27 leaders of the European Union to achieve "mission impossible" and reach an agreement.

Michel reminded the EU leaders that more than 600,000 people had now died as a result of the coronavirus around the world, and 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," the European Council President said at their third dinner in a row at the Brussels conference centre. "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.

The meeting was adjourned on Monday until 1600 CET (1400 GMT).

After the adjournment was announced both the Austrian Chancellor Sebestian Kurz and Rutte said progress was being made at the talks.

"Tough negotiations have just come to an end and we can be very satisfied with today's result. We will continue in the afternoon," said Kurz.

Rutte said talks had been close to failing, but that chairman Michel was now working on a new EU compromise proposal.

"We are not there yet, things can still fall apart. But it looks a bit more hopeful than at the times were I thought last night that it was over," Rutte told reporters in Brussels.

Diplomats had said the leaders may abandon the summit and try again for an agreement next month if talks failed.

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.


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.

News of the EU impasse had little impact on the euro in early Asian trade, with analysts saying markets remained hopeful of an agreement.

"I think expectations were that we weren't going to get a deal at this meeting anyway, but we needed enough in it to give us a belief that there was one coming in August or September," said Chris Weston, head of research at Pepperstone brokerage in Melbourne, Australia.

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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 slightly 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.

An attempt to reach a compromise failed on Sunday. 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.

Discussions over the grants has since narrowed, with Michel saying they would be based on 390 billion euros combined with smaller rebates.

"For us it is very important that if we are to give grants, there is a way to enforce reforms," said Rutte.

"I am very happy with the proposals we have now, we have spoken and haggled over this for a long time, but I am very happy as it is a crucial point for us. But it still has to be approved by all 27 members."

There have been 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 both unnerve financial markets and fuel doubts about the bloc's future.

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