Both sides know they need a deal badly but analysts see Argentina's obstructionist trade policies as a major deterrent to Europeans wanting to push forward talks on a free trade pact.
With Argentine President Cristina Fernandez de Kirchner digging in heels over what other Mercosur member countries see as unnecessary delaying tactics, German Chancellor Angela Merkel issued a riposte, a warning to Mercosur to get its act together.
In her latest comments, Fernandez ruled out fast-tracking talks with EU negotiators to hammer out a free trade deal. Instead, Fernandez said, Mercosur should reconvene and outline new proposals for European Union to consider.
Argentina has been in the vanguard of protectionist measures that last year upset EU negotiators and led to calls in Europe for tit-for-tat punitive curbs on imports from South America, especially Mercosur trade partners and particularly Argentina.
Mercosur founding members are: Argentina, Brazil, Paraguay and Uruguay. Venezuela, an associate member since 2008, became a full member last July. Bolivia and Chile are associate members and Colombia, Ecuador and Peru want to join.
The Mercosur region's 276 million population commands national earnings of more than $3.47 trillion. The European Union sees Mercosur as a lucrative opening for its hard-pressed economies.
In comments during an EU summit with the Community of Latin American and Caribbean States in the Chilean capital, Fernandez said further talks with EU negotiators couldn't be based on what was tentatively agreed nearly a decade earlier.
"We have to build a new scheme of premises, first intra-Mercosur because we are not only Argentina and Brazil but also Paraguay, Uruguay and Venezuela and let's not forget Paraguay is holding elections next April and in August will have new authorities," Fernandez said.
Mercosur has been riven by internal divisions since last year, mainly because of Argentine and Brazilian initiatives to exclude Paraguay from Mercosur activities since impeachment forced former President Fernando Lugo out of office and installed Federico Franco as the new Paraguayan president.
Fernandez indicated the Latin American trade bloc could be vulnerable to European exporters and hurt their economies.
Argentina's neighbors counter that protectionist measures by Fernandez also run against the spirit of Mercosur intra-regional trade without many barriers.
Speaking at the summit, Merkel repeated calls for open markets and shunning of protectionism which, she said, would benefit no one.
Brazilian President Dilma Rousseff agrees with that position but critics say comments by Fernandez amount to a contradiction of EU-Brazilian "understanding" on speeding up the negotiation process.
The European Union has been forcing bilateral partnerships with Central American countries, Chile, Colombia and Peru while talks on a regional pact remain on the back burner.
Chilean President Sebastian Pinera closed the Santiago talks by calling on Mercosur partners and the European Union to join forces "for a better future."
"When one half of the world is living in a recession, the other half can't sustain its own economic growth," Pinera said, adding it was time for concerted action to transform good intentions into results.
Representatives from 61 countries attended the talks. The cash-strapped European Union has been vigorously pursuing new business in Latin America and the Persian Gulf oil-rich states, while seeking to increase presence in East Asia.
The European Union and CELAC are to meet again in Brussels in 2015.