European Union finance ministers have approved a €500bn (£430bn) rescue package to support the continent’s coronavirus-stricken countries and aid recovery during the ongoing pandemic.

The Eurogroup, formed of the 19 members of the eurozone, reached the deal on Thursday after lengthy discussions in Brussels that saw the Netherlands soften its initial demands for economic reform and oversight.

“Today, we agreed upon three safety nets and a plan for the recovery, to ensure we grow together, not apart, once the virus is behind us,” Eurogroup president Mario Centeno said in a video statement. “These proposals build on our collective financial strength and European solidarity.”

Although the deal eases concerns that the bloc was incapable of uniting behind a common strategy, EU leaders must now ratify the accord amid a continuing climate of mistrust and tension, with divisions emerging between north and south Europe.

The main component of the rescue plan involves the European Stability Mechanism, a bailout fund that was created during the EU’s eurozone debt crisis. The ESM will make €240bn available in spending for indebted countries.

Access to this line of credit is guaranteed on a commitment to use the funds for the financing of direct or indirect health care, cure and prevention-related costs associated with Covid-19, Mr Centeno said.

The EU minsters also settled upon a joint employment insurance fund worth 100 billion euros and a European Investment Bank instrument intended to supply 200 billion euros of liquidity to companies.

The agreed package is smaller than the European Central Bank (ECB) had called for. The body warned that the bloc may need up to €1.5tn (£1.3tn) to tackle the pandemic, which has overwhelmed parts of the continent.

More than 65 per cent of worldwide deaths have come from Europe. Italy, Spain and France have so far lost more than 45,000 lives between them.

According to German chancellor Angela Merkel, the pandemic poses the biggest threat to Europe since World War II, testing the bloc’s commitment to solidarity and unity at a time of severe vulnerability and economic turmoil.

Even as the virus’s reach has been indiscriminately global, most countries have acted alone and in their own interests. In Europe, it has pitted the more frugal countries in the north against Italy and Spain, who have accused their counterparts of not doing enough.

A dispute between Italy and the Netherlands over how to finance a temporary fund – that will help kick-start the recovery and support the hardest-hit states – saw talks break down on Wednesday, forcing them to be resumed a day later.

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Italy, Spain and France have been pushing for this mechanism to be funded through joint debt issuance, or so-called coronabonds. Although the Netherlands temporarily stepped back from their demands, the issue is expected to resurface once the details of the package are put to EU leaders next week.

“We are and will remain opposed to #Eurobonds,” Dutch finance minister Wopke Hoekstra said on Twitter after Thursday’s meeting. “We think this concept will not help Europe or the Netherlands in the long-term.”

David Sassoli, the Italian president of the European Parliament, struck a different tone in the wake of the meeting. “Our faith in Europe has proven correct!” he tweeted as soon as EU finance ministers announced the deal.

The French finance minister, Bruno Le Maire, hailed the agreement as the most important economic plan in EU history.

“Europe has decided and is ready to meet the gravity of the crisis,” he said on Twitter.

Although Spain, Italy and other EU countries look to be turning a corner in containing the spread of coronavirus, the economic fallout of the pandemic is set to run deep.