29th Jan 2023

EU countries struggle to crack Hungary's vetos

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Hungary will be in the spotlight on Tuesday (6 December) as EU governments struggle over whether to suspend EU funds to prime minister Viktor Orbán's government — despite rule of law concerns — and unlock key EU policies which Budapest has been blocking.

EU finance ministers gathering in Brussels are expected to discuss suspending EU funds to Hungary, while simultaneously approving the recovery fund with conditions — and come to a common agreement on a joint scheme to help Ukraine, and the global minimum tax.

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"A lot will depend on the discussion during breakfast," one senior EU official said, meaning a lot could still happen before ministers actually meet. The decision on whether ministers take a vote on any of the issues will be taken after the Tuesday breakfast of ministers.

The EU Commission last week proposed to suspend 65 percent of cohesion funds, €7.5bn, to Hungary because in its assessment it said Orbán's government has not fully implemented the 17 measures agreed to alleviate rule of law and corruption concerns.

This requires a qualified majority of member states — 15 countries representing 65 percent of EU population — to be approved by 19 December.

However, the commission at the same time approved Hungary's share of the EU recovery funds, worth €5.8bn, but said it will withhold disbursement of the money until the Orbán government takes 27 measures to reinforce the independence of the judiciary.

This requires a simple majority by EU governments before the end of the year.

But Hungary has been holding up EU decisions on a joint debt to finance assistance to Ukraine, and the global minimum tax, which are now treated as part of a package with the decisions on EU funds to Budapest — in a classic EU political bind.

Political poker

Germany and other countries, including France and Italy, have been arguing for the need of a second report by the commission on the progress Hungary has made since 19 November.

The 19 November date was the pre-agreed cut-off date for Budapest to implement the 17 measures it agreed on with the EU Commission.

"It is a way to put pressure on the commission," Daniel Hegedüs, a senior fellow at the German Marshall Fund, told EUobserver.

The commission on Monday sounded like it was not willing to budge.

"The ball is in the court of the council," commission spokesman Eric Mamer said.

"We believe that the council has all the elements that it needs in order to take a decision," Mamer added.

EU economy commissioner Paolo Gentiloni said there was "no formal request" as of Monday to amend the proposal to suspend 65 percent of the EU cohesion funds.

Berlin is worried that there are not enough member states to reach the qualified majority to back the commission's proposal for a suspension of 65 percent.

There is another sanctions procedure, Article 7 ongoing since 2018, where 12-13 member states have been supporting continued monitoring of Hungary over rule of law concerns.

However, there have not been enough member states to support putting forward recommendations to the Hungarian government or to decide to sanction Budapest.

Germany hopes that reducing the percentage of suspended funds could be a way to gather support behind the commission's proposal, as Budapest has implemented some of the measures it had agreed with the EU executive.

The German government is worried that if the commission's proposal fails to gather enough support, then the hard-fought tool linking EU funds to the rule of law, the so-called conditionality mechanism, could become dead.

"We are waiting for Hungary to lift its veto [on global minimum tax] in the next few days," Bruno Le Maire, French economy minister said on Monday.

"We need a bit more time to study the commission's assessment," La Maire said of the commission's proposal on Hungary.

On the other hand, Dutch finance minister Sigrid Kaag said the Netherlands will abstain on approving the recovery fund for Hungary.

"We have indicated to our parliament, in principle, until further notice, we will abstain when it comes to a vote on the recovery fund, and we will support the proposal [of] the commission, which has done a due investigation and assessment," she said.

Some member states have suggested they would not approve Hungary's recovery plan unless Budapest lifts its vetoes.

If there is no agreement on Tuesday, economic ministers could have another go next week, but some diplomats suggest it could land on the EU leaders' agenda mid-December.

'€13bn leverage'

Hegedüs said that was "an incredibly harmful move".

"The EU had a €13bn leverage over the Orbán government," he said, adding that if the Orbán government receives the EU funds without serious conditions it will be a "huge slap in the face" for the commission.

"The message will be that Orbán again got what he wanted, and it is worth it strategically to veto and to block within the EU, which is an incredibly dangerous message," Hegedüs said.

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