Taoiseach Micheál Martin has described the European Union recovery plan as "unprecedented" but necessary and the right response.

EU leaders are meeting in Brussels as efforts continue to agree on a multi-billion euro Covid-19 recovery package.

Member states are deeply divided on how much of the fund should come by way of grants, and how much should be in the form of repayable loans.

Arriving at the fourth day of the EU summit, Micheál Martin said the meetings were long and challenging, but that the prize is worth negotiating for.

"The prize is the opportunity for the entire European Union to work collectively to reboot and restart the European recovery and to respond to the scale of the impact of Covid-19 on the economic, social and political life of the union itself," he said.

The Taoiseach said that Ireland is taking a "constructive, activist role" to ensure that a package of this scale is delivered that will enable member states, particularly those who are under pressure from Covid-19, to be in a position to respond to it and help their economies recover from it.

"We all benefit from the single market. We all benefit from the opportunities that the European Union opens up.

"That is why in my view it's extremely important that a strong message emanates from this summit that Europe can collectively work together to deal with an unprecedented crisis in our history," he said.

Leaders held tense talks throughout the night on what proportion of the €750bn fund would be made up of non-repayable grants.

The leaders gathered briefly this morning after spending the night negotiating in smaller groups in pursuit of a deal and reconvened this afternoon.

Michel convinced a deal is in sight

EU Council President Charles Michel has said he was convinced EU leaders would reach an agreement.

"We have worked very hard and this proposal is the fruits of lots of collective work with all the leaders and with their teams," Mr Michel told reporters.

"I know that the last steps are always the most difficult, but I am confident I think that even if it is difficult, it will be important to continue to work, I think, and I am convinced that an agreement is possible."

Meanwhile, the vice president of the European Parliament has said she is concerned at the "lack of mention" about the size of the next EU budget.

Mairead McGuinness told RTÉ's Drivetime that a strong recovery plan is needed in light of Covid-19 but so too is a strong budget for the next seven years.

"The fact that I haven't heard anything so far about the budget leaves me a little concerned about what might emerge", she said.

Ms McGuinness said she believes that a levy on plastics is the "most likely" method used to repay loans used for the EU recovery plan.

She said Ireland could lose out and so too could existing policies funded by the European budget.

Efforts made to win over the 'Frugals'

Over a working dinner last night, summit host and Mr 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.

As fears grew that the summit would collapse without agreement, Mr Michel suggested cutting the grant portion of the deal to €400bn, down from his initial proposal of €500bn, and raising the loan part to €350bn, up from €250bn.

However, this was not enough for the Frugals, who insisted grants be cut to €350bn and demanded big rises in the rebates they get on their EU contributions.

Tempers flared as frustration boiled over after a full weekend of haggling, with French President Emmanuel Macron crticising the Dutch and Austrian leaders for their intransigence and threatening a walkout.

The French leader banged the table and accused Dutch Prime Minister Mark Rutte of behaving like former British prime minister David Cameron who took a hard line at EU summits, but ended up leading his country into a referendum to quit the bloc and losing his job.

Mr Macron, who was pushing for grants to stay at €400bn, said he would rather walk away than make a bad deal.

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In a bid to break the deadlock, Mr Michel came up with a new proposal this morning, which a diplomat said could be a "route to a deal".

"A plan with €390bn in grants but smaller rebates for the Frugals," a European official explained.

In a promising sign for Mr Michel's new plan, Austrian Chancellor Sebastian Kurz tweeted his approval.

"Tough negotiations have just come to an end, we can be very satisfied with today's result," he wrote.

Round after round of small group meetings went on all day yesterday as Mr Michel, aided by President Macron and German Chancellor Angela Merkel, tried to drag the Frugals and the more indebted and virus-ravaged, on board for a compromise, but progress was painfully slow.

Mr 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 Italy.

According to reports, the Netherlands was prepared to drop demands for a veto on money being disbursed to member states if they drifted from their reform programmes.

Over dinner, Mr Michel made a heartfelt speech reminding 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?" Mr Michel said, according to a copy of his remarks.

"Or will we present the face of a weak Europe, undermined by mistrust?"

Meanwhile, another obstacle emerged when Hungary's hardline premier Viktor Orban accused Mr 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.

Additional reporting: Tony Connelly, AFP