EU in crisis over Hungary and Poland’s €1.8T hold-up

Poland and Hungary veto EU budget plan

The two countries have followed through on their threat to block spending plans through to 2027. The EU needs a unanimous vote from all 27 members in order to pass the budget and coronavirus economic recovery fund.

Hungary and Poland blocked approval of the EU’s long-term budget on Monday, diplomatic sources revealed. The spending plans also include a €750-billion (£673 billion) coronavirus rescue package.

The two countries are opposed to a rule-of-law mechanism that could see them lose EU subsidies if they continue with policies seen as eroding democratic standards.

“Hungary has vetoed the budget,” Zoltan Kovacs, a spokesman for Prime Minister Viktor Orban said, arguing that the package must reflect a deal reached in July.

“We cannot support the plan in its present form to tie rule of law criteria to budget decisions,” he said.

The veto is likely to delay the delivery of much-needed cash for the EU, with the seven-year budget set to begin January 1.

Poland’s Prime Minister Mateusz Morawiecki threatened a veto last week.

“The question is whether Poland… will be subject to political and institutionalized enslavement,” Zbigniew Ziobro, Poland’s justice minister, said Monday.

“Because this is not rule of law, which is just a pretext, but it is really an institutional, political enslavement, a radical limitation of sovereignty,” he asserted.

Some diplomats said the EU was paying the inevitable price for not fully resolving the rule-of-law dispute during the July summit when the budget-and-recovery package was approved. To clinch a deal after long negotiations, leaders agreed there would be a link in the budget to rule-of-law standards, but left the wording open to interpretation.

“It’s not the end of the story, we are now entering a political phase,” one senior EU diplomat said. “But if the paralysis goes on, we risk finding ourselves with a very reduced budget and only mandatory spending, and no commitment on structural funds, foreign policy etc.”

The details of the deal were then subject to further negotiations between the member states, represented by the German presidency of the EU, and the European parliament. Those talks resulted in the spending total increasing by about €15bn to be funded by new EU taxes.

There was also provisional agreement between the two sides on procedures to block funds from rogue EU governments found to be putting the rule of law or the independence of judges at risk.

The mechanism would allow a qualified majority of member states to impose sanctions where governments fail to maintain democratic standards.

Its inclusion followed the ill-fated launch of procedures under article 7 of the EU treaties against Poland in 2017 and Hungary in 2018 over alleged attempts by the governments to undermine the independence of their judges.

The article 7 procedure requires unanimity among the member states before sanctions, such as the removal of voting rights in Brussels, can be imposed. Both Poland and Hungary had said they would protect each other from such measures, leaving it ineffective.

Under the new mechanism, there would be greater accountability over EU payments through the removal of that veto.

There is still a long road ahead — and multiple potential hurdles — for the bloc’s €1.8 trillion package to become a reality. The seven-year budget will need to win support in the European Parliament and garner unanimous support in the Council before it can come into effect. The Own Resources Decision also needs unanimous support in the Council, before being ratified by member states’ national parliaments.

Even if a temporary political fudge could be found in the Council with Poland and Hungary, national parliaments in Budapest and Warsaw will have the opportunity to in effect veto the funding arrangements for the €750 billion recovery fund, if they so choose — adding extra pressure on negotiators. The national parliaments’ ratification is, however, a double-edged sword. Some parliaments in countries such as Finland are unlikely to ratify the Own Resources Decision if legislators feel that Hungary and Poland were given too many concessions on the rule-of-law front.

A senior diplomat said the European Commission and the German presidency of the EU would need to “take stock” before deciding on the next steps.