By Gabriela Baczynska and Balazs Koranyi
BRUSSELS/FRANKFURT (Reuters) - European Central Bank chief Christine Lagarde urged wrangling EU leaders to act more decisively to cushion the economic hit of the coronavirus pandemic, three sources familiar with the matter said on Friday, as the bloc feuds over how far to go.
The European Union's southern states were left fuming after the bloc's 27 national leaders failed to agree on more support for their economies, which have been battered by the disease, in a six-hour call on Thursday.
Lagarde told the call that "further action is required", stressing the need for urgency and telling the leaders that the EU was being too slow to respond to the crisis, said the people who were briefed on the discussions.
She warned of forecasts of a deep recession and the cost of complacency, they added. It was the second such call by Lagarde to European policymakers this week, after she made a similar case to the euro zone finance ministers on Monday.
In the call on Thursday, Germany and the Netherlands came out forcibly against a push by Italy, Spain, Portugal, France and others to issue joint bonds, an echo of the bloc's feuds during the 2008-12 euro zone debt crisis that damaged EU unity.
"If we don't respect one another and if we don't understand that in the face of a common challenge we must have the capacity to respond to it together, no one has understood anything about what Europe is all about," Portugal Prime Minister Antonio Costa said after the leaders' call ended up late on Thursday night.
In the absence of agreement, the leaders gave their finance ministers two weeks to try to work out a way forward, but EU diplomats said it would be hard for the ministers to agree given that how deeply split their bosses.
One option on the table is a precautionary credit line from the euro zone's ESM bailout fund. But while German Chancellor Angela Merkel said the ESM was the right tool to address the crisis, Dutch Prime Minister Mark Rutte made clear it would have to come with conditions.
"It is only logical that if a certain country needs a particular support, that you also collectively then agree on how that country will be more resilient if a situation like that or another systemic shock were to occur in the future," Rutte said.
The prospect of tying conditions to aid is opposed by Italy, the European country hit the hardest by pandemic. Its death toll of more than 8,000 has surpassed the reported toll in China, where the outbreak began. Spain is suffering another of the world's worst outbreaks, with more than 4,000 deaths.
The EU has already loosened state aid rules and limits on public borrowing to allow member states to carry their economies through the slump induced by the pandemic.
"The south says 'It's really, really bad, let's do everything we can now'. The north says 'We've already done quite a lot, the markets are doing fine, let's take a bit more time to see how things go'," said a senior EU diplomat.
The leaders are due to get back together in about a fortnight.
"EU citizens are waiting for us to act: if not now, then when? The European response must match the gravity of the COVID-19 crisis," said Dacian Ciolos, the head of the European Parliament's liberal faction allied with French President Emmanuel Macron. "The clock is ticking."
(Reporting by Balazs Koranyi and Gabriela Baczynska; Additional reporting by Catarina Demony; Editing by Pravin Char)