Merkel: Budget-recovery deal must come in summer

"There has to be an agreement during the summer, I can't imagine another outcome," she said.

EU leaders gather - for the first time in person since the coronavirus crisis - in Brussels on 17-18 July to bridge the deep differences over the EU Commission's proposed €1.1 trillion budget and €750bn recovery fund.

European Council president Charles Michel is expected to put forward his compromise proposal late next week.

"We all know that the answer to this unprecedented crisis has to be a very powerful one, it has to make a real difference," Merkel said.

Commission president Ursula von der Leyen, joining the press conference from Brussels, said that EU leaders understood that the crisis needed an unprecedented answer.

She added that they had already agreed the commission could raise money to hand out to member states to tackle the dire economic consequences of Covid-19.

EU leaders are, however, divided on the overall size of the package, the conditions attached to it, and methods of distribution.

Fiscally conservative countries, led by the Netherlands, want to see a smaller package with strict and targeted conditions, paid out in loans rather than non-repayable grants.

Southern countries would like to see massive help in grants, which would not add to their public debt pile, while some eastern countries are worried about their traditional EU subsidies.

In an effort to gain the support of the so-called "Frugal Four" countries, Michel is reportedly panning to put forward a slightly smaller budget to leaders, but will not lower the size of the recovery fund.

The Belgian politician also plans to propose that 30 percent will be distributed from the fund only from 2023, depending on the depth of the recession in each country over the next two years, Bloomberg reported.

Merkel faces big expectations to deliver a breakthrough on the recovery fund and the 2021-2027 budget, herself admitting that there is a psychological element in making sure European help to countries most hit by the crisis can be agreed as soon as possible.