BRUSSELS - EU leaders are meeting in their first face-to-face summit since the coronavirus crisis, with low expectations of a deal on a €750bn (£670bn) post-Covid stimulus package.
French President Emmanuel Macron said it was a "moment of truth" for Europe and the next hours would be decisive.
The main issue is how much of the recovery fund will be handed out in grants and how much in loans.
They also need to agree on a seven-year budget worth another €1.07 trillion.
Arriving for the talks, German Chancellor Angela Merkel said "the differences are very very big and I cannot say if we will find a solution this time". It would be desirable, she said, but people had to remain realistic.
The Brussels meeting is due to continue on Saturday but EU leaders may need longer to reach a deal.
European Council President Charles Michel acknowledged that the talks would be "very difficult", but Greek Prime Minister Kyriakos Mitsotakis said nobody should lose sight of the big picture - "we're faced with the biggest economic depression since the Second World War".
Estonian Prime Minister Juri Ratas said "we need a fast, strong and united response to the pandemic to kick-start the European economy".
Southern states including Italy and Spain want an urgent decision "not weakened by a lesser compromise", in the words of Italian Prime Minister Giuseppe Conte. They need to revive economies battered by a devastating pandemic that claimed 35,000 lives in Italy and a further 28,400 in Spain.
The Frankfurt-based European Central Bank has already forecast an 8.7% slump in the eurozone economy this year because of the pandemic. But economies that only recently pulled out of a financial crisis want grants rather than taking on further debt.
The recovery plan, backed by France and Germany, for €500bn in grants and subsidies and €250bn in loans, is being resisted by several "frugal" Northern European countries, led by the Netherlands.
The EU recovery fund is already controversial as the money would be borrowed on the financial markets, to be paid back some time after 2027. It's made up of a number of different instruments, but the biggest part of it would be geared to supporting green and digital investment and reform. Some 30% of the funding could be tied to climate projects.(FA)