Finland refused on Friday to give its support to the stimulus and recovery package proposed by the European Commission to help the 27 member states to overcome the economic crisis derived from the Covid-19 pandemic.
Top EU officials warned member states that they are running against the clock in negotiations to clinch a coronavirus economic recovery plan for the bloc, but expectations remained low for a breakthrough at the leaders' summit on Friday.
"Europe must now invest and reform to get out of the crisis," European Commission President Ursula von der Leyen said before talks kicked off. "We cannot afford any delay."
The EU executive chief proposed an ambitious 750-billion-euro recovery package last month to help the European Union bounce back from what is expected to be the severest recession in its history.
Under the plan, the commission would raise funds on capital markets, backed by member state guarantees, and dole out the money through the next EU long-term budget for 2021-2027.
While key players, including France, Germany, Spain and Italy, are more or less on board with the proposal, the group of countries most defenders of fiscal discipline opposed it.
The frugal four
Austria, the Netherlands, Sweden and Denmark reject large grant handouts - the commission foresees a package made up of 500 billion euros in grants and 250 billion euros in loans - without any reform conditions.
Those countries, known as "the frugal four" need more conviction and are supported by other minor players such as Finland, whose government demanded "changes" in the proposal, according to a press release issued by the Prime Minister's office.
“Finland is constructive about the debate on the recovery instrument, as Europe's rapid recovery from the crisis is also in Finland's interest. However, we cannot accept the Commission's proposal as it stands, and changes are needed in many respects," Finnish Prime Minister Sanna Marin told EU leaders.
With regard to the financial framework, the key issues for Finland are related to the moderate overall level, the financing of rural development and conditionality, especially with regard to the rule of law and climate action.
But countries such as highly indebted Italy argue that loans would simply saddle them with new liabilities.
Any plan will acquire the unanimous approval of the 27 EU capitals, as well as their national parliaments.
Calls to "act courageously"
European Parliament President David Sassoli urged EU leaders to "act urgently and courageously," while European Council President Charles Michel spoke of a "collective responsibility to deliver."
Further contentious points - according to Michel - include: the criteria for doling out funds; how long such programmes should run; and the overall size of the long-term budget in which the plan is anchored. The commission foresees a 1.1-trillion-euro pot.
According to senior EU officials, most core elements of the proposal are contested by one delegation or another.
Austrian Chancellor Sebastian Kurz reiterated his call for conditionality in Vienna on Friday before the start of talks, and stressed that the EU should not become "a union of debt through the back door."
European Central Bank (ECB) chief Christine Lagarde told leaders the package they decide must be "fat, fast, flexible and firmly anchored in economic reforms," according to participants in the meeting.
By acting decisively so far, Europe has created the conditions for an economic rebound towards the end of the year, Lagarde said, while warning that "failure to deliver" could undo positive market sentiment.
8.7% economic decline
The ECB expects a 13% economic decline between April and June and an overall contraction of 8.7% this year, with a chance that Europe's economy reaches pre-coronavirus levels by late 2022.
"The worst impact on labour markets is still to come," she warned, noting that young people could be hit particularly hard.
The best hope, according to Madrid, Berlin and others, is that this first video conference - to be followed by in-person talks - will allow leaders to pave the way for a deal this summer.
A face-to-face summit is to be held on an as-of-yet unannounced date in July, but EU officials may choose to schedule multiple attempts to secure political agreement next month.
Much is at stake if the 27 national delegations cannot find consensus: The 2021-2027 spending plan needs to be signed off in good time to avoid a cliff-edge.
If Europe is left without a budget for 2021 and without a virus recovery package, then it would be a "monstrosity born of an inability to negotiate," German Chancellor Angela Merkel said on Wednesday. "And we all want to avoid that.
"The bridges that we still have to build are large," Merkel told journalists in Berlin following the talks by video conference. "There is still a whole series of questions," she added.