An alliance of "frugals", led by Prime Minister Mark Rutte of the Netherlands and Chancellor Sebastian Kurz of Austria, has been resisting calls for the bulk of funds to be doled out as non-repayable grants.
Squabbling EU leaders try to break the deadlock as their summit on a huge coronavirus rescue package stretched into a fourth day.
Tempers flared in the conference room on Monday as frustration boiled over after a full weekend of haggling, with French President Emmanuel Macron upbraiding the Dutch and Austrian leaders and threatening a walkout.
The marathon talks chaired by EU Council President Charles Michel have failed to yield agreement over the size and rules for a $860-billion (750-billion-euro) package of loans and grants to help drag Europe out of a recession caused by the pandemic.
Over a working dinner with the 27 leaders on Sunday, Michel made a fresh effort to win over the coalition of "Frugals" – the Netherlands, Sweden, Austria, Denmark and Finland – which has sought to cut the size of the package and impose strict rules on how it is used.
Struggling southern nations like Spain and Italy say those conditions should be kept to a minimum.
Amid growing fears the summit would collapse without an agreement, Michel suggested cutting the grant portion of the deal to 400 billion euros – down from his initial proposal of 500 billion – and raising the loan part to 350 billion, up from 250 billion.
In a speech over dinner, Michel reminded leaders of the devastating human cost of the pandemic – 600,000 dead including 200,000 in Europe – and urged them to come together to complete what he called a "mission impossible".
"The question is this: are the 27 leaders, responsible for the people of Europe, capable of building European unity and trust?" Michel said, according to a copy of his remarks seen by AFP.
"Or will we present the face of a weak Europe, undermined by mistrust?"
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But a senior aide to Swedish Prime Minister Stefan Lofven said they were only prepared to accept a maximum of 350 billion euros as grants in the package, and even this was subject to conditions.
"It's about the rebates, higher climate ambitions, and that we include a mechanism that makes so that countries will not be able to get money from the EU budget or this recovery package if they do not follow the principles of rule of law," Paula Carvalho Olovsson told the TT news agency.
Macron, who along with Michel and German Chancellor Angela Merkel has worked to find a compromise deal, could not contain his impatience as the Frugals stuck to their guns over dinner.
According to witnesses the French leader banged the table, attacked Austrian Chancellor Sebastian Kurz for leaving the room to make a phone call and accused Rutte of behaving like former British premier David Cameron – who took a hard line at EU summits but ended up leading his country into a referendum to quit the bloc.
Officials said Macron denounced the two leaders for insisting recovery funds take the form of loans with strict conditions attached, rather than grants – and had said he would rather walk away than make a bad deal.
Often negotiating outdoors on a sundeck in the Europa summit centre in Brussels, the blue skies and fresh breeze had no impact on the mood. Undiplomatic terms like “hate" and “grumpy" have been thrown around between leaders during marathon negotiations that should have drawn everyone closer together to fight a historic recession in the bloc.
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A European source said the Frugals used the dinner to demand massive hikes in the rebates they get on their EU contributions, piling up fresh tensions.
At the start of what she said was probably the "decisive" third day of the extraordinary summit on Sunday, German Chancellor Angela Merkel had said there were still many divisions among the leaders, and so it proved.
Round after round of small group meetings went on all day as Michel, aided by Merkel and Macron, tried to drag the Frugals and the more indebted – and virus-ravaged – on board for a compromise, but progress was painfully slow.
Rutte wants member states to have a veto on national economic plans by the likes of Italy and Spain, in order to oblige them to pursue reforms to borrowing and their labour and pensions markets – an effort that was angrily resisted by his Italian counterpart, Giuseppe Conte.
Meanwhile, another stumbling block emerged when Hungary's hardline premier Viktor Orban accused Rutte of waging a personal vendetta against him and his country – and vowed to prevent any agreement on efforts to tie EU spending to recipient countries' respect for EU standards.
The pandemic has sent the EU into a tailspin, killing around 135,000 of its citizens and sending its economy into an estimated contraction of 8.3 percent this year.