The European Union must prepare for the possibility that talks with Britain on their post-Brexit relationship could fail, Chancellor Angela Merkel warned Wednesday as Germany took the helm of the bloc's rotating presidency.
After months of standstill because of the coronavirus, the two sides resumed negotiations this week on how to define Britain's future economic ties with the bloc, but the tone has hardened.
"I will keep pushing for a good solution, but the EU and Germany too must and should prepare for the case that an agreement is not reached," Merkel told German lawmakers in Berlin.
The veteran leader was speaking on the first day of Germany's six-month EU presidency, set to be dominated by the pandemic and its economic fallout.
But Britain's divorce will loom large too, since London and Brussels only have until the end of December to clinch a new agreement or end their half-century relationship without specific plans for how they intend to trade or coexist in other fields.
Without a deal, ties would be reduced to minimum standards set by the World Trade Organization with high tariffs and serious disruptions to business.
"We want to continue to work constructively with the European Union and we believe that there is a free trade agreement to be reached," a spokesman for British Prime Minister Boris Johnson said.
"But we've also been very clear that we will be prepared for either eventuality," he added.
- 'Serious times' -
Germany has set an ambitious agenda for its EU presidency, which observers say may be the last chance for outgoing chancellor Merkel to shape her European legacy.
Her main goal is to push through a massive economic recovery plan to help the bloc cope with its steepest recession since World War II, triggered by a pandemic that has so far killed over 500,000 people worldwide.
"We are living in very serious times and need to react accordingly," Merkel told German MPs.
The chancellor, who has just over a year left in her final term, has thrown her support behind a 750-billion-euro ($843-billion) recovery fund put forward by European Commission chief Ursula von der Leyen -- Merkel's former defence minister.
The fund would controversially be financed through shared EU borrowing and marks a stunning U-turn for Germany after years of opposition to debt pooling.
The first big test will come at a July 17-18 EU summit, where Merkel hopes leaders will reach agreement on the fund.
The money is expected to come mainly in the form of grants for countries hit hardest by COVID-19, such as debt-laden Italy and Spain.
But several countries including Austria and the Netherlands want to rein in the spending and are insisting on loans rather than grants.
Merkel has urged holdout nations to show "extraordinary solidarity", warning that an uneven recovery would hurt the entire 27-member club.
But "member states' positions are still very far apart," she admitted.
If accepted, the rescue fund would be a milestone for EU unity.
It would also be a big win for Berlin, and could ease some of the lingering resentment from the eurozone debt crisis a decade ago when Merkel's government insisted on harsh austerity for struggling nations like Greece.
- 'Green future' -
Merkel has repeatedly highlighted the need for the bloc to prepare for the post-pandemic future, including through a more unified approach to health issues and by investing in climate-friendly projects.
Environmental demonstrators gathered outside the chancellery Wednesday with bags of fake euro banknotes to demand that any coronavirus stimulus be spent on "a green and just future".
At a Berlin press conference, Economy Minister Peter Altmaier said Germany also planned to use its EU custodianship to reduce the bloc's reliance on outside supply chains after the COVID-19 outbreak left member states scrambling to secure protective gear mainly made in China.
Berlin wants to make progress "as quickly as possible" on a stalled China-EU investment agreement aimed at creating a more level playing field for companies, he added.