Europe's big players see Covid recovery deal coming as summit drags on

European Union (EU) heavyweight Germany said on Monday that national leaders split over a massive coronavirus stimulus plan had sketched a framework agreement that could bring a successful end to a fraught summit dragging into its fourth day.

Slow to coordinate their initial response to the outbreak and already weakened by Britain's departure, the EU's 27 nations could redeem themselves with an economic aid plan that would show Europeans they can step up to a crisis and are united.

But old grievances between fiscally-frugal northern nations less affected by the pandemic and more indebted southern European nations like Italy and Greece, whose economies are in freefall, have made progress painfully slow.

Ahead of the 1400 GMT restart, German Chancellor Angela Merkel said leaders now had a new basis for a deal on a 750 billion euro ($858 billion) recovery fund and the bloc's next 2021-2027 common budget, worth around 1.1 trillion euros.

There is 'hope' for an agreement on EU Covid-19 recovery fund - Merkel

"We worked out a framework for a possible agreement last night after long negotiations," she told reporters, arriving for the fourth day of talks in Brussels in what could be the bloc's longest ever summit.

"This is progress and gives hope that an agreement can be reached today."

European Commission President Ursula von der Leyen was also upbeat about the chances of a deal.

With talks going past midnight for two consecutive nights, French President Emmanuel Macron lost patience in the early hours of Monday and banged his fist on the table in frustration at "sterile blockages" by the Netherlands, Sweden, Denmark and Austria, two diplomats said.

But by daylight, he shared Merkel's optimism, telling reporters as he arrived back: "I'm starting today with a lot of determination to make progress."

Hopes for a deal sent Italy's borrowing costs to their lowest since early March and pushed the euro to a 19-week high.

President of the European Council Charles Michel (L) and President of the European Commission Ursula von der Leyen (R) meet with Ireland's Prime Minister Micheal Martin (2nd R), Luxembourg's Prime Minister Xavier Bettel (4th R) and Belgium's Prime Minister Sophie Wilmes (3rd R) during European Union Council over a post-virus economic rescue plan, in Brussels, Belgium July 19, 2020. Francois Walschaerts/Pool via REUTERS

ECB CAUTION

Summit chair Charles Michel urged leaders on Sunday to achieve "mission impossible", reminding them that more than 600,000 people had now died from COVID-19 around the world.

"It looks a bit more hopeful than at the times where I thought last night that it was over," Dutch Prime Minister Mark Rutte told reporters in the early hours.

Within the 750 billion euro recovery fund, 390 billion euros could be considered as non-repayable grants, diplomats said, a compromise between the 350 billion level of the five "frugals" - who also include Finland - and the 400 billion euros demanded by France and Germany.

Austrian Chancellor Sebastian Kurz told ORF radio he was satisfied with the negotiations and the forming of an informal group of "frugals". "These are all small countries, which alone would have no weight at all," he said.

Issues over tying payouts to economic and democratic reforms were still to be resolved, although Spain signalled willingness to put up with some conditions being attached to aid.

"We don't reject conditionality," Foreign Minister Arancha Gonzalez Laya told Cadena SER radio. "We need a basis that gives confidence to us and to our partners."

European Central Bank (ECB) President Christine Lagarde cautioned against 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 any 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.