Merkel and Macron Walk Out on Rutte in EU Stimulus Dispute

(Bloomberg) -- European Union leaders failed to unlock an agreement on a 750 billion-euro ($860 billion) response to the coronavirus pandemic after a second day of sparring in Brussels and will come back to try again on Sunday.

Leaders continued with informal talks after negotiations broke up at 11 p.m. on Saturday as they tried to find common ground on the composition of the fund and the conditions attached to it. A crucial late-night meeting including Dutch Prime Minister Mark Rutte, Germany’s Angela Merkel and Emmanuel Macron of France ended abruptly in a dispute over how much of the package should be disbursed as grants and how much as loans.

Germany and France are insisting that at least 400 billion euros should be handouts and Rutte and four other fiscal hawks from northern Europe are pushing for a much lower figure, a French diplomat said. After several attempts at finding a compromise, Merkel and Macron left the meeting and returned to their hotel together for further discussions, the diplomat said.

“They are walking away grumpy,” Rutte told reporters afterward. “A compromise is possible tomorrow but there remain big issues.”

With investors already pricing in a deal after a series of bold announcement in recent weeks, leaders are under intense pressure to bridge their differences before financial markets open on Monday.

“We simply cannot afford to either appear divided or weak,” Greek Prime Minister Kyriakos Mitsotakis said as he returned to summit venue on Sunday.

Yet the battle has exposed the fault lines at the heart of the EU. Fiscally hawkish countries are showing their resentment at paying for the pandemic while the southern countries worst affected are struggling to contain their outrage at the lack of solidarity.

“Europe is being blackmailed” by the hawks, Italian Prime Minister Giuseppe Conte said in a statement released by his office. Italy may suggest the possibility of seeking an accord of just 26 nations, leaving out the Netherlands, which are at the forefront of opposition to the plan, according to an Italian official. Though a Dutch diplomat said there is no way such an idea would gain traction.

‘Legitimate Ambitions’

Rutte and his allies from Austria, Denmark and Sweden are trying to water down the handouts that the highly indebted South sees as critical for shoring up its finances. While Saturday proved less bad-tempered and more constructive than Friday’s gathering, it was still difficult to discern much progress. Conte called it a “deadlock” while a German diplomat said the talks had reached a critical phase.

“Until now what we have seen is the commission, the president of the council and the majority of member states making an effort to come closer to four countries,” Portugal’s Antonio Costa said. “They also have to make some effort.”

The 27 leaders are meeting in person for the first time since February, when initial talks over the EU’s seven-year, 1 trillion-euro budget also ran into a wall. Now, with more than 100,000 Europeans dead from the virus and an economy to rebuild, investors are looking to the group to muster a display of unity to maintain the rally in stocks.

“The will to find a compromise should not make us renounce the legitimate ambitions which we must have,” Macron said. “In the coming hours we will see if the two are compatible.”

The deliberations are proving to be a baptism of fire for Michel, a former Belgian Prime Minister, and European Commission President Ursula von der Leyen, who drew up the original plan. They only took up their jobs in December and have faced criticism from governments over their handling of the pandemic response.

Merkel and Macron have been pressing for an agreement before the summer but haven’t yet been able to bring their weight to bear to force a result. The bloc’s two largest economies are seen as crucial power brokers and they were photographed sitting on a sunny terrace as they searched for a breakthrough.

“We’re entering the third day of talks and it certainly is the decisive one,” Merkel said on Sunday morning. “It’s possible there will be no agreement today.”

©2020 Bloomberg L.P.