Economy & Politics

Budget blockadeWhat you need to know about the dispute over the EU budget

Hungary's Prime Minister Orban (r.) And Poland's Prime Minister Morawiecki are holding on to their veto on the planned EU budget
Hungary’s Prime Minister Orban (r.) And Poland’s Prime Minister Morawiecki are holding on to their veto on the planned EU budgetimago images / newspix

What are the consequences of the veto for the EU?

If Hungary and Poland stick to their position, the veto could become a serious problem for the EU. Because the EU budget has to be decided unanimously by all 27 EU member states. If Hungary and Poland do not agree, this means for the entire EU in case of doubt that from 2021 they will have to get by with an emergency budget that would be smaller than the one previously planned. Much more important, however, is that with the veto not only the 1.1 bio. The EU budget of € 750 billion will be blocked, but also the € 750 billion Corona aid package, which the countries agreed on after a long struggle. The help is urgently needed. Countries like Spain or Italy, which were particularly hard hit by the Corona crisis, can hardly support their own economy without the EU funds.

What does the emergency budget mean for Hungary and Poland?

Poland and Hungary would also have to accept significant financial losses with an emergency budget. Because both are among the largest net recipients of EU funds. In 2019, for example, Poland was the largest net recipient of EU funds with EUR 12.04 billion from the EU budget. Hungary received 5.08 billion euros. Without the current EU budget, these sums would have to be significantly smaller. The financial support from the Corona aid would then also be omitted: The current plans include 37.7 billion euros for Poland and 8.1 billion euros for Hungary.

Why are Hungary and Poland opposing the EU budget?

Hungary and Poland have vetoed the EU budget because they reject the rule of law mechanism associated with it. This would ensure that in future the EU can restrict the payment of subsidies to member states that do not adhere to the rule of law – but only if there is a risk of EU funds being misused. First, the Hungarian Prime Minister Viktor Orbán opposed the mechanism, then Poland followed and Slovenia also recently expressed its criticism – but has not yet vetoed it. In July, all EU countries – including Hungary and Poland – approved the rule of law mechanism in principle. Now they are criticizing that the mechanism has been changed.

What about the rule of law mechanism causes disputes?

Two things have actually changed: On the one hand, the misuse of EU money does not have to have happened yet, but the mechanism already takes effect when there is a serious risk. In addition, 15 member states with at least 65 percent of the EU population must agree to a country sanction. Most of the criticism from Hungary and Poland does not refer to these changes at all, but is much more fundamental: They fear that the rule of law mechanism could be used by certain EU countries as a weapon against other countries. Orbán sees such a case as the example of a different kind of migration policy that differs from that of the majority of EU member states. But that is very unlikely: On the one hand, 15 countries with 65 percent of the population have to agree. On the other hand, it is very precisely regulated how and when the mechanism may be used.

Would Hungary and Poland have anything to fear from the rule of law mechanism?

When it comes to the misuse of EU funds, Hungary could actually face consequences with the rule of law mechanism. In Hungary it happens again and again that EU funds flow to the family or people close to Prime Minister Orbán. In Poland, for example, the government’s increasing political control over the judiciary could become a problem. If there is a serious risk here that the Polish judiciary, for example, can no longer independently check where the EU funds are going, the rule of law mechanism could also take effect here. Concern that the rule of law could be used against countries is very unlikely: On the one hand, more than half of the EU member states, or 65 percent of the population, would have to agree. On the other hand, it is very precisely regulated how and when the mechanism may be used.

What can the remaining EU countries do now?

One still hopes that Hungary and Poland will give in after all. European Minister of State Michael Roth, for example, has appealed that this is not the time for vetoes – without success. The remaining EU countries could, however, adopt the corona aid without Hungary and Poland. For example, by outsourcing the aid from the financial package and deciding on it individually. This could be done by the 25 remaining countries in what is known as “enhanced cooperation”. A group of at least nine EU countries, even in a smaller circle, can make decisions that only affect these countries. Here, the countries concerned would have to decide unanimously – but this should not be a problem without Hungary and Poland and possibly Slovenia. In order to set this process in motion, the federal states need the permission of the Council of Ministers, but only with a qualified majority. The consent of Hungary and Poland is not necessary. The rule of law mechanism could then also remain in place; here, too, the consent of Hungary and Poland is not required. However, the two countries could continue to block the EU budget. And theoretically, the other EU countries could also move away from the rule of law mechanism. However, this is considered very unlikely.

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