EU strikes deal with Hungary, easing funding freeze to get Ukraine aid approved – Reuters

The deal is done.

On Monday evening, Hungary asked EU countries to reduce the amount of a proposed funding freeze in exchange for Budapest lifting its veto on key elements, including an aid package for Ukraine.

Hungary was set to lose 7.5 billion euros in EU disbursements amid fears the money could contribute to corruption in the country. In protest, Budapest blocked both an €18 billion EU aid package for Ukraine and a minimum global corporate tax rate.

But on Monday, EU countries agreed to lower the suspension to 6.3 billion euros.

They also approved Hungary’s spending plan for its pandemic recovery funds – 5.8 billion euros in grants which have also been withheld for a year and a half due to concerns about democratic backsliding. However, the countries made the approval conditional, saying Budapest must complete 27 anti-corruption and judicial independence reforms before getting its money.

The result amounts to a victory for Hungarian Prime Minister Viktor Orbán, who has spent months betting he could use vetoes to get EU funds from Brussels. Two factors worked in its favour: a European system that requires unanimity on many major decisions, and an intense EU desire to preserve a united European facade as war rages nearby.

That said, the decision still means Hungary is set to lose billions in expected funds at a time when its economy is faltering. And there is no guarantee that he will be able to deliver on his promise to pass the 27 rule of law reforms needed to unlock pandemic recovery funds and unfreeze regular EU funds. Already, the country has struggled to satisfy EU officials assessing its progress.

For the EU, the agreement will bring some relief on the Ukrainian front. It’s been weeks since the European Commission first pledged to give Kyiv 18 billion euros to help cover budget shortfalls in 2023, and frustration was mounting over the delays.

In recent days, officials had been scrambling to draw up a Plan B to disburse Ukrainian funds without Hungary’s approval – crafting a proposal that required 26 countries to offer individual guarantees instead of a government-backed guarantee. EU. Such a move would have exposed unwanted cracks in the EU’s approach to Russia’s war.

Now, after the European Parliament gave its approval on Tuesday, the EU can begin disbursements to Ukraine in January.

The EU will also avoid the embarrassment of not being able to ratify its part of a tax deal designed to prevent multinational corporations from jumping on tax bills. Brussels has championed the pact and more than 130 countries, including EU members, have now signed it.

Avoiding these embarrassments comes at a cost, however. Monday’s deal will also likely open the EU to accusations that it is unwilling to stand up to its rule of law absentees.

In addition to the reduced funding suspension, the deal paves the way for Hungary to receive up to €5.8 billion in pandemic recovery grants by 2026. And it comes after Poland recently used the same tactic to get its pandemic recovery funds approved – albeit with the same caveats about passing early reforms.

The breakthrough came at a meeting of EU ambassadors on Monday evening after months of haggling with Budapest. Their decision will be formalized in a written procedure ending on Wednesday.

Two deadlines added pressure and increased the likelihood of a deal. First, EU countries had until December 19 to decide whether to freeze EU funds intended for Hungary due to rule of law concerns. Moreover, Hungary needed a majority of countries to approve its recovery plan by the end of the year, otherwise it would lose 70% of the subsidies.

On Monday evening, the recovery plan was passed after winning the support of a supermajority of EU countries – equal to a majority of countries representing 65% or more of the bloc’s population. The Netherlands, frequent critics of Hungary’s democratic backsliding, said it would abstain.

Poland – which has also delayed the global tax deal until June – issued a last-minute reservation on the issue, posing another unexpected hurdle. But the country has until Wednesday to lift its objections and should do so, according to two European diplomats.

In the run-up to Monday’s decision, countries such as the Netherlands and Sweden had pushed to suspend the full 7.5 billion euros before giving in and backing the lower figure.

In parallel, France and Germany spearheaded efforts to ensure funds withheld were “proportional” to any anti-corruption progress Hungary might have made – an effort that many saw as an attempt to essentially conclude the deal that was finally reached on Monday.


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