The last difficult step towards the EU budget

By Myriam Marino

In a European scenario where countries are currently being heavily confronted with the second wave of the Covid-19 epidemics, the veto enacted by Poland and Hungary has represented an impasse, which had to be necessarily overcome, in the path towards the economic recovery of the EU States. The adversities encountered as a consequence of the outbreak, and the first wave of Coronavirus have undoubtedly supplied EU Members with the basic instruments to tackle subsequent upsurges. Nonetheless, the capacity for resilience of the European countries has been called and is being called into question. Despite positive news on the efficacy of tested vaccines and incoming mass vaccination programs, a positive and stable recovery still represents a distant prospect.

On November 17, two of the Visegrád group countries – Hungary and Poland – vetoed the European Union budget. The EU budget includes the Recovery Fund, namely the main instrument of support to boost a post-Covid economic rebound of the Union countries, proposed by the EU Commission. As a fact, on July 21 of this year, the 27 Members had finally agreed on a budget amounting overall to € 1824.3 billion, which comprehended the Multiannual Financial Framework (MFF) for 2021-2027 and the Next Generation EU recovery fund package. The overall response had been positive, particularly thanks to the celerity of the arrangements agreed and defined plan.

Since the decision on the EU financial package requires unanimous agreement among the 27 Member States in order to become effective, the veto enacted by the Hungarian Prime Minister Viktor Orbán and Poland’s Prime Minister Mateusz Morawiecki, a decision which had already been announced on November 16, represented a relevant set-back for further progress. As EU countries are resorting to any possible tool to manage the economic downturn and a social and health crisis, for the majority of the member states the hypothesis of an obstacle to access to funds was off the table.
The reasoning behind the rejection of the package was immediately made manifest and clarified.

On November 5, a provisional agreement had been reached, by a qualified majority, by the Council Presidency and the European Parliament’s negotiators on the new budget conditionality regime, a proposal originally presented in May 2018 with the aim of protecting the EU budget. More specifically, it granted the protection of the totality of EU funds and was therefore aimed at denying or reducing access to them, in case of “breaches of the principles of the rule of law in a member state”. Consequently, the Polish and Hungarian right-wing leaders, by vetoing the whole package, in fact, rejected an instrument that could come back to haunt them. The two leaders eventually confirmed their intention to remain firm in their position through a joint declaration that followed a meeting in Budapest on November 26, officially cementing their union in the context of the controversy. The position of objection towards the conditionality mechanism was supported by the Prime Minister of Slovenia, Janez Jansa, as well.

This occurrence was not, however, an entirely unexpected event. In December 2017 and September 2018, respectively, Article 7 procedures had been introduced against Poland and Hungary, in relation to the rule of law, and, in September 2020, a need to continue with the same legal procedures was made clear.
The veto, nevertheless, sparked turmoil among the Member States and created deep concern to German Chancellor Angela Merkel, particularly taking into consideration that negotiations over the EU budget and recovery package had been subject to discussions for months, while Europe was burdened by the political and social consequences of the first wave of Covid-19, terroristic attacks and increasing migration movements connected to the pandemics. As the general reaction was critical towards the stance of the two Eastern European countries, France, among others, advanced a hypothesis to overcome the veto, namely a separate EU package to be launched through an inter-governmental agreement, in order to unblock the funds.

As far as Hungary is concerned, the government proceeded to clarify the decision to veto by commenting that the rule of law clause might be a pretext for Brussels to justify policies aimed at supporting immigration and gender rights. As a matter of fact, Viktor Orbán expressed criticism towards the way in which the provision of EU funds tightly depends on unspecified and unobjective infringements of the rule of law. The Prime Minister noted how this could potentially allow room for “political abuses”. With respect to Poland, on the other hand, the Polish MEP Ryszard Legutko affirmed that, from his point of view, the European Union is subject to a “tyranny of the majority“, which represents a matter of concern to Poland. Furthermore, the Polish Prime Minister Morawiecki firmly emphasized the potential negative consequences of binding EU funds to political and democratic questions.
A solution to the dispute proved to be more difficult than expected in the previous weeks, as Orbán stated his willingness to approve the EU budget package only in the case of the elimination of the conditionality regime linked to the rule of law. This was further emphasized with the words of the Hungarian Foreign Minister Péter Szijjártó, who claimed the interconnectedness of migration, terrorism and religious extremism, and aligned with the point of view of Orbán on the potential danger of the rule of law conditionality. As the position of the Polish Prime Minister Morawiecki on the issue was equally firm and inflexible, Merkel suggested that a settlement of the issue would have taken time and effort. It must be taken into consideration that in the case of the lack of an agreement on the MFF, Member States would have had to resort to the EU monthly emergency budgets at the beginning of 2021. Moreover, it was clear that, even in the case of a compromise to be reached, the issue regarding the rule of law and the maintenance of democratic standards, including the independence of judges and media freedom, would have arisen again. The controversy has, indeed, signalled a fracture within the EU, which can lead to ulterior consequences in the future of the Union.

The main question at this point is: to what extent were Hungary and Poland willing to renounce to EU financial support?
Both countries are currently being deeply challenged by the coronavirus pandemics. As a matter of fact, after a spring wave which, overall, displayed that the country had been able to contain the threat with a relatively lower number of infections in comparison with several EU countries, Hungary is now confronted with a more dangerous situation with the second Covid-19 wave. It was, therefore, deemed necessary to introduce, between the end of October and November, new and stricter limitations, including a curfew from 8 pm to 5 am which will remain in force until January 11. On the other hand, Poland has reached more than 1 million confirmed coronavirus cases and the restrictions introduced at the beginning of the month of November for sports clubs, theatres, cinemas and restaurants were extended to December 27. Not to mention that, on a domestic political level, Poland has recently been the scene of massive anti-government protests, between the months of October and November.

Moreover, it is worth mentioning that both Hungary and Poland have, over the years, figured among the largest net beneficiaries of EU funds. Nonetheless, in the context of the controversy, Viktor Orbán stated that a lack of agreement on the issue, and, consequently, the failure to unblock the EU budget would not have represented a financial problem for his country. Thus, taking into consideration the present times of crisis, there are no doubts that both Budapest and Warsaw are in the same position of the need of urgent and substantial support from the EU as the other Member States. Moreover, both countries were placing themselves in a dangerous potential position of isolation in the European Union. Given the fundamental importance of the EU budget, the hopes were always that the two countries would eventually give up and agree on the mechanism. If not, a compromise needed to be achieved, since the inter-governmental option excluding Poland and Hungary would have been hazardous and the process to complete it would have been long and difficult. Furthermore, a similarly extreme solution would have made money available for an immediate economic boost. However, the fundamental issue at stake would have remained unchanged, challenging the cohesion of the Union.

On November 25, the head of the European Commission, Ursula von der Leyen, suggested that Poland and Hungary should take their issue to the Court of Justice of the European Union, a proposal which was then rejected by the Polish Prime Minister.
By December 7, little progress was made on the issue, as the leaders of both countries refused to give in to what they perceived as Brussels’ “blackmail”. In the view of the debate taking place on December 10-11 in the context of a European Council Summit, however, the situation began to change, and breaches towards a resolution started to open, particularly as the mayors of Budapest and Warsaw distanced themselves from the decision of their governments. The prospect of an alternative program of support initiated by the EU, excluding Poland and Hungary indeed created concern. On both parts, nonetheless, the official position was unremovable.

Finally, from December 9, a more open attitude was taken towards possible proposals and tangible progress in the discussion were achieved through the intervention of the German presidency. A compromise was, in fact, eventually reached and the veto was lifted. The EU budget remains attached to the rule of law mechanism, which was not removed as hoped by the two V4 countries. However, the legality of the mechanism will be discussed in the context of the European Court of Justice and, until then, breaches of the rule of law cannot be sanctioned as the regulation will not be in function. This might mean that the rule of law conditionality will not be appliable for one or two years.

It is difficult to declare a winner and a loser in this controversy. While the EU managed to move forward without surrendering to the demands of Poland and Hungary, the rule of law mechanism remains temporarily frozen. Nevertheless, high contentment was shown by the involved parts as a consequence of the final agreement. From the point of view of the vetoing countries, the settlement was considered progress in terms of improving unity and solidarity at the European level, with a further reaffirmation of their intent to protect their populations and provide them with all necessary tools for recovery.

The EU budget will officially enter into force for all 27 Members on January 1, 2021. The EU Member States can indeed breathe a sigh of relief, but the now-solved disagreement creates a degree of uncertainty in the long term. What is certain is that, at present, the priority of the European Union at the turn of the year is to eradicate the pandemic and cope with the effects of it.