EU Leaders Deadlocked On Recovery Fund As Talks Extend Into Fourth Day In Brussels

European Union leaders have yet to reach a deal on a 750-billion-euro ($858 billion) COVID-19 recovery fund as a negotiations stretched into a fourth consecutive day in Brussels on Monday.

The main stumbling blocks to an agreement have to do with the size and distribution of the massive fund, with some northern European states balking at the magnitude of the package and how much of it will be issued as grants rather than low-interest loans. There is also disagreement over how the fund payments should be administered and overseen.

“Things can [still] still fall apart,” said Dutch Prime Minister, Mark Rutte on Monday morning. Rutte, a hawk on the recovery fund, wants payments linked to fiscal reforms, particularly in the hard-hit countries of southern Europe like Spain and Italy.

The final proposal on the recovery fund, which will be presented by European Council President Charles Michel, must still be approved by the heads of state of all 27 EU members.

The original proposal, supported by Germany and France in May, called for the distribution of 500 billion euros ($573 billion) in the form of grants, which would not have to be repaid. But Netherlands, Austria, Sweden, Denmark and Finland think that amount should be reduced to 350 billion euros ($401 billion).

“[Four hundred billion euros in grants] is now the red line for a lot of countries, primarily because otherwise it would weaken the Germany-France axis,” one official from a southern European state told CNBC on Sunday.

German Chancellor Angela Merkel and French President Emmanuel Macron have defended the “ambitious” level of grants, said one EU official, with Macron reportedly warning recalcitrant states they were placing Europe at risk by failing to reach a solution to the impasse.

Italian Prime Minister Giuseppe Conte said Europe was "under the blackmail of the 'frugals,’” referring to the four northern states calling for tight restrictions on payments and grants.

Complicating matters even more, Hungarian Prime Minister Viktor Orban and his ally Poland have threatened to veto the fund entirely if the EU links fund disbursements with countries adopting more democratic principles.

"I still cannot say whether we will find a solution. There is a lot of goodwill but also many different positions," Merkel said.

Much of the ire at the summit has been directed at Rutte.

Bulgarian Prime Minister Boyko Borissov said Rutte was "acting like the policeman of Europe,” while Orban complained "It's [the] Dutch [man] who's to blame... I don't know why he dislikes us."

Conte told Rutte: "You might be a hero in your home country for a few days. But after a few weeks you will be held responsible for blocking an effective European response to COVID-19."

However, Bloomberg reported that the Netherlands, Austria, Denmark and Sweden will now accept a figure of 390 billion euros ($447 billion) of the fund being made available as grants.

“Our base case is a deal is done by the end of the month, but I still think [Monday] is possible,” said James McCormick, global head of desk strategy at NatWest Markets in London. “The euro’s broad-based rally was a big macro story last week and it clearly reflected a growing optimism around eventual passage of the recovery fund.”

EU Budget Commissioner Johannes Hahn warned that the bloc must reach a deal quickly.

"High time to reach an agreement which allows us to provide the urgently needed support for our citizens and economies," he tweeted over the weekend.