Dispute over rule of law and eu budget: hungary and poland blockade

The dispute over tying EU funds to rule of law principles is escalating. Hungary and Poland veto Corona reconstruction funds.

Poland’s Prime Minister Mateusz Morawiecki (l) and Hungary’s head of government Viktor Orban (r) Photo: Piotr Jaruga/imgo

Hungary and Poland have blocked the new EU budget, triggering a serious crisis. As justification, both countries pointed to the new rule of law mechanism, which is supposed to protect the 1.8 trillion euro budget from abuse. The dispute is now likely to move to the EU video summit next Thursday, with Chancellor Angela Merkel called upon to act.

Merkel had pushed through the budget, which also includes the debt-financed Corona reconstruction fund, at the EU summit in July. At the time, the rule of law mechanism played only a supporting role. It was not until weeks later that the German EU Council Presidency submitted a proposal, which was then further sharpened by the European Parliament. This has now led to a scandal with Hungary and Poland.

Hungarian Justice Minister Judit Varga accused the EU of blackmail: "When it comes to the future of our children and grandchildren, Hungary and the Hungarian people don’t compromise, whether that means a fight for freedom or a simple veto." The Polish government said the planned mechanism meant "completely arbitrary decisions."

The question of whether EU funds could be linked to respect for the rule of law was "fundamental for Poland’s future," Polish Justice Minister Zbigniew Ziobro said. For Poland, he said, the issue is whether it is a sovereign country within the EU or "subjected to political and institutionalized enslavement."

In the morning, it was still hoped that Hungary and Poland were bluffing

Both countries fear that the new instrument will lead to cuts in EU aid. In fact, that is exactly what is planned. However, financial sanctions can only be triggered if there are new violations of the rule of law, if the EU Commission makes a proposal to that effect and if the Council of Ministers agrees by qualified majority. The hurdles are high.

Merkel had accommodated Hungary and Poland in formulating the rule of law mechanism. Moreover, there were still hopes in Berlin on Monday morning that Budapest and Warsaw were only bluffing and would refrain from a veto in the afternoon vote. But that hope has now evaporated. "We are back in a crisis," said a senior EU diplomat.

Whether and how this crisis can be resolved is an open question. The German presidency could still try to change Hungary’s and Poland’s minds. A supplemental declaration is also being considered that would address their concerns. After that, there could be a second vote. It is considered more likely, however, that the dispute will become a top priority and move to the EU video summit on Thursday.

Merkel could speak there with Hungary’s head of government Viktor Orban and Polish Prime Minister Mateusz Morawiecki. But a public debate carries risks – it could lead to an open dispute. France and the Netherlands, for example, have already made it clear that they insist on the rule of law mechanism.

Delays loom for Corona reconstruction fund

The blockade comes at a critical moment for the EU and Germany. The EU budget has been the only tangible success of the German presidency so far. The rule of law mechanism was a "red line" for the European Parliament. Now no one wants to go back behind it. Merkel is in a quandary.

At the same time, the urgently needed new Corona reconstruction fund, which is part of the budget, is threatened with further delays. The first monies from the 750 billion euro fund are now not expected to be disbursed until early summer 2021. Yet the Corona crisis is already raging, with a new recession looming in southern Europe in particular.

MEP Jens Geier warned against lazy compromises. "If the defenders of the rule of law and democracy allow themselves to be taken hostage, we have lost," said the head of the SPD group in the European Parliament. The AfD, on the other hand, described the veto as the last chance to prevent the country from going into a "debt union."

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