By Gabriela Baczynska
(Reuters) - European Union leaders meet in Brussels next week to discuss a proposal to inject hundreds of billions of euros into their economies ravaged by the COVID-19 pandemic.
German Chancellor Angela Merkel has called for a swift agreement but EU leaders are far apart on important elements of the plan to attach a 750-billion-euro ($850-billion) recovery fund to the bloc's proposed 1.1-trillion-euro 2021-27 budget.
Dutch Prime Minister Mark Rutte is holding out in a tug-of-war between the wealthy and thrifty northern countries and their debt-ridden southern peers, which have been hit harder by COVID-19.
Here are the main gaps the 27 EU heads must bridge to unlock the money and heal divisions.
The frugal states, which include the Netherlands, Austria, Denmark and Sweden, want a smaller EU budget for 2021-27 than proposed.
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 handouts.
The extra 750 billion euros the executive European Commission would borrow on the market for member states to spend is considered too much by some, and too little by others.
Germany, Austria, the Netherlands 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 south wants free grants. The Dutch want only repayable loans to be offered, and say acquiring joint EU debt to finance recovery is a non-starter.
The Commission has proposed half a trillion euros of 750-billion-euro fund would be made available as free subsidies and the rest as repayable loans. That proportion could change.
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 rates 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 damages caused by COVID-19.
The EU leaders' chairman, Charles Michel, is due to present a compromise blueprint on Friday. He has suggested the allocation criteria could change to include the latest forecasts of the scale of economic slump in each member state.
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 greater solidarity.
Most EU countries want to be able to freeze out any state flouting basic democratic principles, a warning to Poland and Hungary where nationalist governments stand accused of undercutting the rule of law.
Ways of deciding who gets what from the 750-billion-euro 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
Michel has suggested repayment of the Commission's 750-billion-euro debt might have to start from the 2021-27 budget, earlier than proposed so far and in line with requests from Berlin and others.
How to repay the borrowing remains unresolved, with ideas for more EU-wide levies on carbon dioxide emissions or single-use plastics facing opposition but 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.
(Additional reporting by Francesco Guarascio and John Chalmers, Writing by Gabriela Baczynska, Editing by Timothy Heritage)