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December 9, 2020


EU: Towards overcoming the Polish and Hungarian budget vetoes

BY Carsten Nickel

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The German EU Council presidency appears to have reached an agreement with Poland and Hungary that should allow passage of the bloc’s macro budget and the pandemic recovery fund when heads of state or government meet on 10-11 December. As discussed in the past, the solution seems to be built around explanatory declarations and, therefore, further cements the broad outlines of the previous agreement struck between Berlin and the European Parliament.

The compromise looks like a typical EU solution, as it will allow everybody to declare themselves winners. Western capitals can claim that Poland and Hungary have complied with their deadline, sending a signal about their willingness to compromise by this morning. They can also highlight that the rule of law mechanism will come into force as previously agreed. Finally, they can uphold the narrative that Poland and Hungary gave in after they were threatened with being excluded from the recovery fund.

However, the prospect of a prolonged standoff leading to a provisional EU budget for 2021 is probably a much more menacing prospect than the relatively unrealistic threat of the 25 remaining countries setting up their own recovery fund. Investing EUR 750bn in a solution that divides rather than keeps together the entire EU would go against fundamental principles of major member states. But a merely provisional 2021 budget would have posed grave risks for a country like Hungary, given the effect on structural funds.

It seems that, as anticipated, Poland and Hungary will receive additional clarifications in line with the previous compromise between Germany and the European Parliament. This had already focused the rule of law conditionality in the budget on anti-corruption. Further commitment to such an understanding on the level of political leaders in the European Council might turn out to be relevant evidence for Poland and Hungary, in case European funds ever were to be cut and both countries wanted to challenge that decision in front of European courts – especially if the bloc’s Court of Justice ends up being mentioned in the explanatory declaration. The text might also explicitly limit the reach of any rule of law provisions to “new” money, as compared to existing funds, while requiring political debate in the Council.

Looking ahead, Budapest and Warsaw will try to sell the agreement as a victory in front of their domestic electorates and political allies. This might be complicated. In Poland, the main signpost to watch is the reaction of United Poland (SP), a junior coalition partner which had threatened to withdraw support for Prime Minister Mateusz Morawiecki if the proposed rule of law mechanism remains unchanged. In Hungary, Prime Minister Victor Orban will have to reassure his allies that the deal will not endanger access to lucrative EU-funded projects. Also, any delay in the implementation of the rule of law mechanism would be welcomed by the ruling Fidesz, which aims for another two-thirds majority in the spring 2022 parliamentary election.

In West European capitals, meanwhile, preserving the substance of the pre-existing compromise would likely enable support for a deal to move ahead with the crucial budget and recovery fund. The prospects for the rule of law will continue to depend primarily on the construction of supportive political majorities domestically, and only then on top-down prescriptions from Brussels.

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