Hungary and Poland Nearing Deal with EU on Budget and Rule of Law

After weeks of a standoff with the European Union over rule of law conditions set by the bloc, Hungary and Poland have agreed to lift their veto over the Union’s stimulus package in exchange for a much more lenient oversight process on the part of the EU. The final deal is still to be approved by European leaders.

In a response to the EU’s proposed conditions for disbursing development funds to member states, Hungary and Poland indicated in mid-November that they would block the Union’s spending plans through 2027 by vetoing the bloc’s budget and the EUR 750-billion (USD 888 billion) rescue package designed to combat the economic fallout caused by the coronavirus pandemic. What followed was a Mexican-style standoff between the two eastern member states and Brussels, as both sides dug in their heels. The apparent breakthrough is a compromise brokered by Germany that will pave the way for the EUR 750 billion in financial rescue to the bloc’s economies most affected by the pandemic. The deal is still to be discussed and approved at a meeting of the bloc’s leaders, but experts believe they will likely approve the agreement.

The proposed deal
Hungary and Poland opposed the EU’s plan to condition EU funding on rule-of-law standards, and threatened to undermine the EU’s pandemic aid fund and the 2021-2027 budget. The two nations said the EU conditions threatened to cut their funding and undermine their governments.
The proposal put forward by Germany, which holds the EU’s rotating presidency, still ties disbursements to democratic standards, though such sanctions can’t be triggered until the European Court of Justice has ruled on the legality of the new rules, a process that could take more than a year to complete.
Reports from Poland earlier this week suggested that Warsaw’s stance was softening as leaders in the Polish capital seemed intent on finding a compromise. Hungarian Prime Minister Viktor Orbán was adamant that accepting the proposed mechanism would equal “suicide” for Hungary.
The compromise would allow EU leaders to link any cuts in the flow of funds to rule-of-law breaches that affect the financial interests of the EU, such as failure to prosecute government corruption.
The deadlock threatened billions of euros that Hungary and Poland are due to receive in the coming years, as well as financial assistance urgently needed to help ease the recessions caused by the pandemic. Together, the two nations are supposed to get EUR 180 billion (USD220 billion) over seven years, or 30% of their combined gross domestic product in 2019, according to Bloomberg calculations. German newspaper Die Welt calculated that Poland is to receive EUR 23.1 billion and Hungary EUR 6.2 billion from the financial rescue package.

EU membership questioned?
After the regime change a little more than three decades ago, EU membership became one of the most coveted political and economic status for the former eastern bloc. Once admitted into the club, these countries propped up their economies thanks to the billions of euros of aid provided by the EU. For the EU, incorporating the east in 2004 was the defining moment for the political project.
In recent years, however, the relationship between Brussels and the governments in Budapest and Warsaw soured. Both Poland and Hungary clashed with the EU over various issues and the bloc’s threats have been backed up by little action. Economists argue that despite the difference in views, neither Hungary nor Poland can realistically afford to leave the EU as their economies would take an unspeakable hit. Even Britain risks sinking into recession next year if last-minute talks on the island nation’s exit from the EU fail.
Another factor for political leaders to consider in Warsaw and Budapest is the population’s overwhelming support for the common European project. A survey by Hungarian pollster Medián Institute – published earlier this week – showed that support for EU membership set a record in November: about 85% of the voting population supports Hungary’s EU membership, despite the fact that the relationship between the Union and the country has hit a rocky road. Support for membership stands at 77% among Fidesz voters, while among those that would vote for the opposition it is an overwhelming 94%.
As Orbán gears up for the 2022 elections, where he aims to win a fourth straight term in office, any messages about Hungary potentially leaving the EU are most likely just empty slogans.