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Factbox: Wide gaps EU leaders must bridge to unlock COVID-19 economic stimulus

(Reuters) - European Union leaders will try to bridge major differences at a summit in Brussels on Friday and Saturday over a proposal to inject hundreds of billions of euros into their economies to help them rebuild from the COVID-19 pandemic.

European Union leaders take part in the first face-to-face EU summit since the coronavirus disease (COVID-19) outbreak, in Brussels, Belgium July 17, 2020. REUTERS/Francois Lenoir/Pool TPX IMAGES OF THE DAY

German Chancellor Angela Merkel warned that a deal was far from certain on the plan to attach a new 750-billion-euro ($850 billion) recovery fund to the bloc’s next budget for 2021-27 projected at slightly above 1 trillion euros.

Dutch Prime Minister Mark Rutte was holding out in a tug-of-war between the wealthy and thrifty northern states on one side and their southern peers, debt-ridden and hit harder by COVID-19, on the other.

Hungary threatened a veto and Poland also opposed a push to condition handouts more on respect for the rule of law.

Here are the main gaps the 27 EU heads must bridge to unlock the money and heal divisions.

1. SIZE

The so-called Frugal Four - the Netherlands, Austria, Denmark and Sweden - want a EU budget smaller than the 1.074 trillion euros proposed by the European Commission, the EU executive.

Beneficiaries of EU development programmes and farm subsidies - including Poland and other poorer states on the bloc’s eastern flank but also France, Italy and Spain - want to keep their generous benefits.

The extra 750 billion euros the Commission would borrow on the market for member states to spend is considered too much by some member states, and too little by others.

2. REBATES

Germany, Austria, the Netherlands, Denmark and Sweden want to keep reductions on their contributions to the EU’s joint coffers. Others want the reductions ended.

3. GRANTS AND LOANS

The southern members wants free grants. The Dutch want repayable loans to be offered instead, and say acquiring joint EU debt to finance recovery is a non-starter.

The Commission has proposed that 500 billion euros out of the 750-billion-euro fund would be made available as free subsidies and the rest as repayable loans. That could change.

4. ELIGIBILITY

Eastern member states including Lithuania and Bulgaria oppose the Commission’s proposal to channel most of the 750-billion-euro fund to southern countries such as Spain, Italy and Portugal, based on their high unemployment before the pandemic.

To get more of the pie, they say criteria such as depopulation should be honoured, or that access to these extra funds should be tied solely to the scale of economic slump in each member state due to COVID-19.

Under the latest proposal by summit chairman Charles Michel, 70% of the recovery fund would be paid out in 2021-22 based on the former set of criteria, while the rest would go in 2023 and take into account the latter. That is being contested.

5. CONDITIONS

The wealthy north says enacting economic reforms should be a requirement for member states to access the recovery money. That is anathema to the south, which wants no strings attached.

Most EU countries want to be able to freeze out any state flouting basic democratic principles, which prompted nationalist Hungarian Prime Minister Viktor Orban to threaten to veto the whole package.

Ways of deciding who gets what from the recovery fund, and ensuring a fixed portion of EU spending goes into projects to advance digitalisation and fight climate change, are other elements all 27 EU leaders need to agree on.

6. REPAYING DEBT

When and how to repay the 750 billion worth of borrowing remains unresolved, with ideas for more EU-wide levies on carbon dioxide emissions or single-use plastics seen as less contentious than introducing new digital or financial taxes.

7. TIME FRAME

Northern and southern member states disagree on when the stimulus money would start flowing and stop.

($1 = 0.8829 euros)

Editing by Mark Heinrich

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