The European Union will finally suspend 55% of structural funds for Hungary. It is the first time the Council of the EU freezes the delivery of money to a Member State for violating the rule of law. But the punishment has been less than what the European Commission proposed for Budapest, for not completing the list of justice and anti-corruption reforms on time: it will not finally be 65%, about 7,500 million euros, but around a billion less , according to European diplomatic sources. The Twenty-seven reached an agreement on Monday night, as reported by the Czech Republic, which holds the rotating presidency of the EU this semester, after weeks of negotiation and after the ultra-conservative government of Viktor Orbán lifted two vetoes on matters key for the EU with which it has been playing as a bargaining chip: the package of 18,000 million euros in joint aid for Ukraine and the effective minimum rate of 15% in corporate tax, which had been stranded for almost a year.
It was evident that the matters were linked. That the Hungarian Prime Minister, Viktor Orban, one of the Russian allies, Vladimir Putin, in the EU, was subjecting his European partners to blackmail, according to several community sources. If they wanted the ultra-conservative Hungarian politician to give the go-ahead for financial aid to Ukraine and allow the European Union to comply with the agreement that had been reached with a hundred or so countries to set a minimum floor in the taxes paid by companies, they would have to lift the suspension of structural funds to Budapest that the Commission had proposed and approve the recovery plan, another 5,800 million.
Orban, at first, seemed to have the upper hand. The remaining 26 states wanted to send financial assistance to Kiev quickly so that the country, which is resisting the Russian invasion, can continue to meet its current spending and they came to ask the Commission indirectly on Tuesday of last week, at the meeting of finance ministers – the so-called Ecofin – to be more lenient in their assessment of the measures that Hungary had promised to adopt to fight corruption. The community Executive of Ursula Von der Leyen refused on Friday. She did not want the first time that she launched the Conditionality Mechanism against a State for violating the State to end with a rinse in which the Commission took part.
From here things have been turning dark for Budapest. Over the weekend, member states agreed on an alternative path in case they could not get Budapest to lift the veto. The formula, which was designed so that Kiev would receive the money with or without Hungary and eliminated that part of the blackmail that Viktor Orbán has been agitating, would have covered the 18 billion euros with national guarantees and bilateral agreements instead of establishing a joint debt for the Union, to which Hungary was opposed until today.
However, this common path that has finally gone ahead was the path preferred by the Council of the EU and by the Commission because it would allow funds to be sent to Ukraine faster, community sources point out. With national guarantees, the money would arrive only at the end of January. And the situation in Ukraine is very difficult, with temperatures below zero and millions of people without access to electricity and heating.
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With this new scenario, the Member States have been negotiating since Saturday. Time was pressing. The proposal to suspend funds linked to the Conditionality Mechanism had to be approved or rejected before December 19. And neither could it be allowed to arrive at the European Council on December 15 – the last summit of heads of state and government of the year – with the four files open. This Monday afternoon, around 4:00 p.m., the light has begun to be seen, diplomatic sources indicated. Finally, four hours later, a meeting of ambassadors began that ended after 10:30 p.m. with white smoke.
Hungary couldn’t hold out much longer either. Ukraine is obviously in urgent need of money to deal with the war launched by Russia. But neither can the Orban government afford to do without a single euro of European money: its fiscal deficit this year is enormous; the Hungarian currency has plummeted; inflation is above 20%; and going out to borrow from the market has become a nightmare for the Treasury of this country, which has come to have a risk premium (the difference in yield between German and Hungarian 10-year bonds) of 800 basis points. In short: the EU’s wayward partner was playing with fire if it maintained this attitude, because without European money the fiscal storm is just around the corner.
In addition, Orban cannot say that the play will work out for him either. Although the Council has lowered the suspended money somewhat. The sanction is still high: it goes from 65% of structural funds to 55% (about 6,300 million). And whether he wants to access these resources or those of the recovery plan, he will have to reverse a large part of his dismantling policies in the rule of law that his ultra government has followed.
In the case of Ukraine, the agreement reached tonight does not solve all its problems. kyiv needs about $38 billion a year to cover its financial needs and essential state functions, according to the International Monetary Fund. European money will have conditions that kyiv must complete: from issues related to governance, the fight against corruption or the rule of law. It is something that has already happened with the previous packages, which have been arriving little by little and not always with the promised schedule.
The EU continues to increase aid for Ukraine to deal with the Russian invasion. This Monday, the Foreign Ministers of the Twenty-seven have approved an increase of another 2,000 million euros in the main defense fund of the Union, the European Fund for Peace, from which they are extracting hundreds of millions to help Kiev with weapons. At the same time, the Union is moving to increase pressure on the Kremlin and add dozens of new names of Russian individuals and entities to the list of sanctions while negotiating a new package of sanctions on technological components and new mining projects in which some countries They press to include explicitly that the sanctions cannot impact fertilizers and food.
The new €2 billion for the European Peace Fund (EPF) is on top of the current €5 billion with which the extra-budgetary fund covers member states’ arms donations provided to Ukraine. Of those 5,000 million euros, almost half have already been committed. The new disbursement of the fund, which could increase another 3,500 by 2027 and add other projects, comes when some member states have shown some concern about how and when they will be paid what they have already donated weapons to Kiev.
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