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28th Jan 2023

EU delays Hungary funds decision, as Budapest vetoes Ukraine aid

  • EU Commission vice-president Valdis Dombrovskis and Czech finance minister Zbyněk Stanjura after the meeting (Photo: Council of the European Union)
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The standoff between the EU and Hungary escalated on Tuesday (6 December) over the approximately €14bn in EU funding to Budapest, as prime minister Viktor Orbán's government vetoed the bloc's joint financial aid to Ukraine.

Economy ministers meeting in Brussels also postponed a decision on the bloc's adoption of the global minimum corporate tax which Hungary has also threatened to block.

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Hungarian finance minister Mihaly Varga said at a meeting that his country would not support joint debt backing the €18bn support package for Kyiv, which caused "frustration" among the other ministers.

"Our ambition remains that we will start disbursement of aid to Ukraine in early January," Czech finance minister Zbyněk Stanjura said after the veto, asking officials to "examine alternative solutions", which could be "supported by 26" of the 27 EU countries.

Ministers dropped the adoption of Hungary's €5.8bn recovery plan for now in response.

That could increase the pressure on Orbán, as Budapest could lose 70 percent of those funds if they are not approved by ministers before the end of the year.

Stanjura said after the meeting that the presidency was treating the three issues as a single package.

"We cannot afford any more delays," the Czech minister said on the aid to Ukraine, adding that the presidency is "fully committed to finding a compromise".

Ministers also delayed an expected discussion, and possible vote, on the EU Commission's proposal to suspend 65 percent of EU cohesion funds, worth €7.5bn, slated for Hungary over rule of law concerns and wide-spread corruption.

EU governments asked the commission to provide another assessment on how much Hungary has done in the last two weeks on reinforcing rule of law and anti-corruption measures, delaying a decision to suspend EU funds to Orbán's government.

The commission is expected to provide a new assessment by the end of the week, after which next week EU ambassadors could decide on the suspension, the approval of Hungary's recovery fund, and unlock Budapest's veto on the bloc's adoption of the global corporate minimum tax.

EU Commission vice-president Valdis Dombrovskis said the timeline is "extremely compressed".

'Alternatives'

On Monday, the commission was still pushing back on the idea of a second assessment of Hungarian measures in less than two weeks.

However, some member states, notably Germany and France, think there are currently not enough member states to back the suspension of the funds which needs a qualified majority.

Other countries also benefitting from cohesions funds are wary of punishing Hungary, and the hope is that a lower rate of suspension could bring them on board.

The worry is that if the suspension fails in the council of member states, that would then kill the new mechanism linking EU funds to the rule of law, which took years to negotiate.

Meanwhile, an alternative solution to the financing of the Ukraine aid could be to have borrowing by the commission backed by national guarantees, something that was considered when Hungary and Poland jointly threatened to block the recovery fund in 2020.

It is a slower and more cumbersome procedure than having the EU budget providing the guarantee, which requires unanimous backing from EU governments.

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

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EU Commission to keep Hungary's EU funds in limbo

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