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November 22, 2020

EU scrambles to resolve rule of law stand-off as economy suffers

Business

 
November 22, 2020

Brussels: Viktor Orban, Hungary’s prime minister, insisted that with “political will” a compromise could yet be found in the EU’s budgetary stand-off.

But a day after an inconclusive video conference of EU leaders, it was far from clear how soon the bloc will be able to find a resolution to the impasse over a so-called rule of law mechanism opposed by Budapest and Warsaw.

The EU’s senior leaders, including German chancellor Angela Merkel, are scrambling to defuse the budget crisis in time for a key summit on December 10-11, and so avoid delays to the bloc’s landmark €1.8tn response to the coronavirus pandemic.

At the core of the dispute between Brussels and the illiberal governments of Poland and Hungary is a mechanism that makes the disbursement of billions in EU taxpayer money conditional on governments’ respect for fundamental principles including the independence of the judiciary.

Diplomats representing Mr Orban and his Polish counterpart Mateusz Morawiecki on Monday said they would veto the EU’s seven-year budget package, including its €750bn recovery fund, because of their objections to the legislation.

Mr Orban on Friday said there was still room for compromise, adding that budget debates could “go to extremes” and that there were “many possible solutions; it’s only a question of political will”.

But in the absence of a deal, the EU would be forced into adopting an emergency austerity budget from January 1 next year, which would result in billions of euros in lost payments to member states, including Hungary and Poland, that are enduring the worst economic downturn since the second world war.

Daniel Freund, a Green MEP, urged the EU and the German government, which is in charge of the bloc’s rotating presidency, to stick to its guns over the rule of law.

“It will send the strongest signal to Hungary and Poland that their fight is futile, that they can’t block the conditionality, and ultimately they can’t win.”

The parties are now preparing for detailed negotiations. Officials describe the coming weeks as a high-risk game of chicken, with both sides trying to call each other’s bluff. EU officials point out that Hungary and Poland will end up among the biggest losers of a no-deal budget, because they will be disproportionately hit by the loss of lucrative EU funds that make up at least 5 per cent of their gross domestic product.

For their part, Warsaw and Budapest calculate that Brussels will have to offer concessions on the rule of law or risk the huge reputational damage that would accompany any delay to aid that is desperately needed in southern economies such as Spain, Italy and Portugal.

The European Parliament and EU officials are adamant that they will not rewrite the proposed rule of law legislation to accommodate Budapest and Warsaw’s concerns.

Vera Jourova, the European Commission’s vice-president for values, said on Friday that the mechanism was the “bare minimum” and that the EU had the right to know that taxpayer money “will go where the rule of law is not under threat”.

There is a sufficient majority in the European Parliament and EU Council to approve the rule of law conditions under qualified majority voting, meaning it could apply

to whatever budget comes into force in 2021 even if Budapest and Warsaw continue to hold out.

At the same time, some diplomats are talking about more extreme options such as formally carving out Hungary and Poland from the recovery fund by establishing it as an inter-governmental treaty between the other 25 member states.

This remains very much a last resort, but it highlights the deep frustration that Hungary and Poland have provoked among their EU partners.

EU diplomats hope that, for all the bellicose talk, Poland’s resistance will prove softer given its desperate need for an uninterrupted flow of EU money.

One official said that, in private meetings, Polish officials had struck a more conciliatory tone than their Hungarian counterparts.

Krzysztof Szczerski, chief aide to Polish president Andrzej Duda, said on Friday that he hoped that the “method of searching for compromise will be successful” and that there would be another round of negotiations on the budget and recovery fund.

But he also reiterated Poland’s criticism that the rule of law mechanism was too vague, and claimed that in the EU, the rule of law was treated as a political rather than a legal concept.

“If we are supposed to be punished for something, we need to know for what, and on what basis,” he told state-run broadcaster TVP Info.

“This isn’t the case, because for several years EU law has been spoiled by interests and politicians in Brussels.”

—The Financial Times Limited 2020