BRUSSELS (Reuters) – A European Union plan to breathe life into economies throttled by the coronavirus pandemic hung in the balance on Sunday as leaders quarrelled over the level of spending and what strings to attach to it.

On the third day of a tense summit in Brussels, the 27 EU states were still seeking a compromise over a 1.8-trillion-euro ($2.06-trillion) package for the bloc’s next long-term budget and a recovery fund to haul Europe out of its deepest recession since World War Two.

German Chancellor Angela Merkel said an agreement might be beyond reach. Austrian Chancellor Sebastian Kurz said a deal was possible but there was still “a way to go”, with “frugal” wealthy northern countries pushing for a smaller recovery fund.

Most of the proposed 750-billion-euro recovery fund, which is to be raised on capital markets by the EU’s executive European Commission, would be funnelled mostly to hard-hit Mediterranean rim countries.

Sticking points are the size of the fund and the split between grants and repayable loans, with the “frugals” – led by the Netherlands – trying to limit the size of the fund in talks that underscore the gulf between the EU’s north and south.

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By Sunday afternoon, in talks where participants wore protective face masks, diplomats said the leaders were looking at about 350 billion euros in grants – down from a proposed 500 billion euros – as a possible compromise with the thrifty north, though Italy was opposing conditions that the Netherlands wants attached when the money is disbursed.

There were differences over rebates from the EU budget for rich net-payer countries, and on a proposed new rule-of-law mechanism that could freeze funding to countries flouting democratic principles, the envoys said.

“NO GROCERY”

Hungary – backed by its eurosceptic ally Poland – has threatened to veto the package if its disbursement is made dependent on meeting conditions on upholding democracy that are sought by more liberal states in the north and west of the bloc.

Luxembourg Prime Minister Xavier Bettel said such conditions were needed to safeguard democratic values that were the backbone of the EU.

“Because Europe is not a grocery where you can choose what you want. Europe is, above all, the values that we protect,” he said.

For some, the summit is a ‘make-or-break’ moment for nearly 70 years of European integration, and failure to agree during such a severe health and economic crisis could fuel doubts about the viability of the bloc and unnerve financial markets.

Greek Prime Minister Kyriakos Mitsotakis, whose country was recovering from a 10-year debt crisis when the pandemic hit, called for unity, saying the EU could not afford to look “divided or weak”.

Some EU diplomats said the talks could run into Monday, though they said another summit later in July, or in August, was more likely if there was no deal.

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

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

Rutte lacks a parliamentary majority and his conservative VVD party faces a strong challenge from far-right eurosceptic parties in elections next March.

“Maybe even more important” than simply kickstarting growth was assigning money to climate and digital projects that would strengthen Europe’s hand vis-a-vis China and the United States, UniCredit’s chief economist, Erik Nielsen, said in a note.

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