Friday 17 July 2020 10:03 am

Angela Merkel lowers hopes as talks start over €750bn EU Covid fund

European Union leaders face “very, very difficult” negotiations over a €750bn coronavirus bailout fund, German Chancellor Angela Merkel has warned ahead of the start of talks today.

EU heads of state today go into the first in-person leaders’ meeting for five-months to try to thrash out a deal over a huge fund that could kickstart the continent’s economy.

Read more: European Central Bank holds interest rates as it eyes recovery

But opposition to some of the plans from the Netherlands and Hungary means agreement could be hard to come by.

“We are all going into the talks with a lot of vigor,” Merkel said as she arrived at the summit.

“But I must say that the differences are still very, very big and so I can’t yet say whether we will get a solution this time.” She added: “I expect very, very difficult negotiations.”

The talks will be particularly challenging for Merkel, who currently holds the EU’s rotating presidency.

The Eurozone has been hit hard by the coronavirus outbreak, with Italy and Spain two of the worst-affected countries in the world.

The European Commission earlier this month predicted the Eurozone economy will shrink by a record 8.7 per cent this year. It said the European Union economy will contract by 8.3 per cent.

Netherlands opposes grant plans

Germany once opposed the EU issuing debt to hand out cash in the form of grants to the worst-hit states. But Merkel united with French President Emmanuel Macron to support proposals for a €750bn fund.

The Commission has proposed the bulk of the money be funded by the EU issuing its own bonds. And Macron has said most of the cash should be handed out as grants.

However, these plans face opposition from the Netherlands’ Prime Minister Mark Rutte. He opposes the bulk of the money being given out as grants – which countries would not have to pay back.

Read more: Angela Merkel lowers hopes as talks start over €750bn EU Covid fund

On Tuesday, Rutte said that “subsidies should come with very strict conditions”. Arriving for the talks today he said he is “not optimistic” about the talks, “but you never know”.

Hungary’s president Viktor Orban is also at loggerheads with the European Commission. He has promised to block any deal that ties bailout money with respect for the rule of law.