European Union (eu) leaders agreed in a 4-hour video conference on Thursday to create a massive "recovery fund" to help the 27 member states cope with the impact of a new pandemic and restore their economies, and asked the European commission to revise its long-term budget for 2021-2027.

The "recovery fund" is expected to be between €1tn and €1.5tn, but eu leaders highlighted the "north-south divide" over the proportion of subsidies and loans it will contain.

[new Marshall plan]

This is the fourth summit of eu leaders to tackle the new outbreak. After the meeting, the parties approved a "common recovery roadmap" drawn up by the European commission on June 15, signed a €540 billion economic rescue plan that will take effect on June 1, and agreed to "work towards the creation of a recovery fund". The 27 leaders charged the European commission with submitting detailed proposals for a "recovery fund" by May 6th.

European parliament President David sassoli addressed world leaders in a video conference, calling for the adoption of a "new Marshall plan for Europe," the Associated Press reported. But unlike the post-world war ii Marshall plan, which was financed mainly by the United States, Mr. Sasoli wanted European countries to contribute together.

European council President Charles michel, who chaired the meeting, told reporters after the meeting that he felt the eu had shown "very strong political will" to succeed in fighting the outbreak. "This outbreak is weighing heavily on our society. The well-being of each member state depends on the well-being of the eu as a whole. We are all in the same boat."

European commission President Ursula von der leyen said the only way to succeed in creating a large "recovery fund" was to link the eu's seven-year budget to the fund. The eu's seven-year budget is due to come into force on January 1 next year and there are still differences over the details of the budget, with the main sticking point being how to fill a fiscal gap of around 75 billion euros left over from Britain's departure from the eu.

Mr Von der leyen believes one way to source the "recovery fund" would be to raise member states' contributions to the eu budget from 1.2 per cent of gross national income (GNI) to 2 per cent. German chancellor Angela merkel supports greater contributions to the eu budget. "of course that means Germany has to contribute more to the new budget... But that's right and good.

Subsidy or loan?

While agreeing to create a massive rescue fund, world leaders struggled to agree on how much aid and loans a "recovery fund" should include. Southern countries such as Italy and Spain, which have been hit hard by the outbreak and are already heavily indebted, want the eu to grant more and borrow less, while less severely affected and wealthier countries such as Austria and the Netherlands want to lend more rather than pay for countries with shaky balance sheets.

Italian prime minister giuseppe conte said in a video conference that "subsidies are essential" or the economies of some countries could slide to the brink of collapse, threatening the eu's internal market, Reuters reported. But Austrian chancellor Sebastian kurz said on social media twitter that Austria was willing to show solidarity "through loans" and that he would consult with "like-minded" countries such as Denmark, Sweden, Finland and the Netherlands on the issue.

The French President, Emmanuel macron, acknowledged differences over a "recovery fund" mechanism, saying the eu should not only lend, but also "make a real fiscal tilt towards the hardest hit regions and sectors of the economy". Mr Von der leyen also admits that "there is a need to find the right balance between subsidies and loans".

A senior eu diplomat at the meeting told Reuters that the eu was "slowly moving towards some form of joint debt" but that "we would never call it a 'new crown bond' or a 'eurobond'" and that the bond would be sponsored by "the commission rather than the whole membership".

The economic outlook in Europe is not optimistic. Christine lagarde, the President of the European central bank, estimated at the meeting that the outbreak could depress the euro zone economy by between 5% and 15%. The euro zone's economy is likely to contract 5.4 percent this year, the worst year for the single currency since 1999, according to a Reuters poll. The imf's latest forecast is even worse, suggesting the euro zone economy may contract by 7.5% this year.