Hopes for an EU budget deal hit by 'democratic values' impasse

Poland has rejected speculation it is looking for a compromise in its spat over the European Union’s €1.8 trillion budget and coronavirus-rescue package. It comes as Hungary, the other outlier, said it won’t back down unless Brussels relents in tying spending to upholding democratic values.

With the clock running down to clear financing that’s vital to member states’ chances of avoiding a double-dip recession, the comments by the two countries are denting hopes for a deal at a summit next week.

The eastern European nations – both net recipients of EU development cash which has transformed their economies since communism fell – have clashed repeatedly with the EU in recent years over adherence to the rule of law, exposing them to potential funding cuts under the new mechanism.

Poland reaffirmed its commitment to back Hungary in obstructing any proposal that violates each others’ interests.

A deputy Polish prime minister had suggested that a declaration from EU leaders on how to interpret the contested provision may resolve the issue.

“We can’t accept the next EU budget with the currently proposed rule-of-law mechanism,” Polish prime minister Mateusz Morawiecki said.

“The Polish position is crystal clear and hasn’t changed. Our partners are aware of that.”

Hungarian premier Viktor Orban, meanwhile, reiterated that binding spending to democratic norms is unacceptable.

“Hungary is adamant that the two things have to be separated,” he said.

EU governments and lawmakers struck a deal on the bloc’s budget for 2021 yesterday, a necessary step to avoid having to switch to emergency spending next year. The plan still requires leaders’ approval for the seven-year budget which is being held up by Hungary and Poland.

If leaders fail, the EU will operate on an bare-bones monthly budget where payments will suffer for many key areas such as cohesion funding for the poorest regions or EU priorities like health, migration and the green transition.

“The agreement reached today between the European Council and the European Parliament on the EU budget for 2021 shows that the EU is capable of acting, even in difficult times,” German finance minister Olaf Scholz said in a statement, urging a quick resolution to the dispute.

“All those who are still blocking must finally clear the way.”

With Germany holding the EU presidency and leaders set to gather on December 10, chancellor is still seeking a deal. A workaround solution involves cutting Hungary and Poland out of the €750bn rescue fund, effectively stripping them of the power to stop the flow of aid to the continent’s battered economies.

“If they don’t respect the rules in our game on the European level then we do it without them,” Manfred Weber, the head of the European People’s Party caucus in the European Parliament, said.

Investors are so far signaling that they expect the EU to find a way to resolve the budget problems.

Hungary and Poland, however, could miss out on a combined €180bn from the multi-year budget and the relief fund.

Despite Hungary and Poland calling the rule-of-law provision an attack on their sovereignty, European Council President Charles Michel said he remains optimistic that a solution can be found.

“I really hope over the next few days we’ll be able to resolve those difficulties we face,” Mr Michel said in Brussels. “Concerns have been expressed. There’s a fear the mechanism can be used in an arbitrary manner. We need to see if we can placate peoples’ minds.”

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