By Laurence Norman 

BRUSSELS -- Negotiations among the European Union's 27 leaders for recovery plans worth EUR1.8 trillion ($2.06 trillion) remained deadlocked late Sunday, leading to tense exchanges and fears of a breakdown.

After three days of talks to agree a proposed spending package to lift Europe's economy out of a coronavirus-sparked slump, EU leaders were still divided over the size of the final plan, how much of it should be available in grants and some of the conditions attached.

Failure to reach a deal could spark a negative financial markets response, weeks after European leaders said there was a basic consensus around the outlines of the plan. A number of top EU leaders have said a deal must be in place before the summer break.

EU leaders had started their first face-to-face summit in five months on Friday morning, hoping to agree by Saturday evening a multiyear budget plan pitched at over EUR1 trillion and an economic recovery plan that Brussels believed should be EUR750 billion strong.

The plans are intended to prop up the economies worst affected by coronavirus, like Italy, Spain and Greece, without sending their already high debt levels soaring further, allowing them to increase crisis spending now. The recovery plan would be funded by the European Commission raising hundreds of billions of euros of debt in the markets, an unprecedented step.

However the rifts over the size of the recovery plan and how much of it would be made up of grants proved too strong to wrap up on time, with the Netherlands leading a group of countries who wanted to limit handouts, and France, Germany and southern countries badly hit by the health crisis pushing to maintain the proposed EUR500 billion in grants.

By Sunday evening, the Netherlands was pushing for a EUR700 billion recovery fund, half of which would be available in grants. France, Germany, Italy and Spain were insisting that grants must be no lower than EUR400 billion.

The leaders were also divided over other issues. There was discord over a push to reduce budget funding for countries judged to be backsliding on democratic standards. As talks ground on, rules about social distancing and wearing masks seemed to slip as leaders huddled into side rooms for intense negotiations. The trillion-euro strong budget will cover EU spending on projects across the bloc from 2021-2027.

On the recovery plan, the Netherlands, a major net payer into EU coffers, has insisted that member states should be able to block payments if a country wasn't delivering on its economic reforms agenda, a position that has met strong resistance from Italy.

During Sunday evening's dinner exchanges, Dutch Prime Minister Mark Rutte came under fire from other leaders, according to officials observing the talks.

"You might be a hero in your homeland for a few days, but after a few weeks you will be held responsible before all European citizens for blocking an adequate...response," Italian Prime Minister Giuseppe Conte, according to two officials.

Other officials involved said negotiations looked likely to drift late into the night.

"We need it to get dark" before a deal is struck, said one senior diplomat.

Write to Laurence Norman at laurence.norman@wsj.com

(END) Dow Jones Newswires

July 19, 2020 18:22 ET (22:22 GMT)