Hungary and Poland Unbowed Over EU Budget Deal as Showdown Looms

Hungary and Poland Unbowed Over EU Budget Deal as Showdown Looms

18:08 - German Chancellor Angela Merkel is setting the groundwork for a showdown with two eastern European Union countries that have threatened to veto a $2.2 trillion spending package in a dispute over democratic standards.

Hungary and Poland are headed for the gravest clash with their peers since they joined the EU in 2004, after reiterating on Monday they won’t agree to tying disbursements from the bloc’s budget and virus-recovery fund to upholding the rule of law.

Polish Prime Minister Mateusz Morawiecki and his Hungarian counterpart, Viktor Orban again insisted on changing a deal that the rest of the EU has said can’t be altered.

“When it comes to EU negotiations, we are open to new proposals and convinced that an agreement can be reached, but it must be in line with EU treaties,” Piotr Muller, Morawiecki’s spokesman, said after the two eastern European premiers met in Warsaw. Neither of the prime ministers spoke to the media.

As Merkel nears the end of her fourth and last term, she and other EU leaders are ratcheting up pressure on on Poland and Hungary to relent.

A child of the former East Germany and leader of the EU’s biggest economy, Merkel has long supported the flow of cash to help lift living standards in ex-communist countries like Poland and Hungary. After 15 years as German chancellor, she’s now battling on multiple fronts including future relations with the U.K. after Brexit.

But now she sees no resolution in sight for the deadlock holding up the EU’s economic recovery package, which includes the EU’s seven-year budget and some 750 billion euros ($900 million) of jointly financed pandemic aid.

And even as she called for compromise from both sides, she rejected claims from Orban and Morawiecki that a July agreement between EU leaders on the strings attached to disbursements improperly mixes the budget and issues related democratic norms.

“The rule of law is the basis for the European project,” she told a parliamentary committee. The argument that conditions were “introduced through the backdoor into the budget process, that is not correct,” she said.

A unanimous approval by all 27 EU governments is needed for allowing the bloc’s executive arm to raise debt in capital markets to finance the package.

At a meeting of EU government envoys in Brussels on Monday, the German ambassador to the bloc said that a decision will be taken by Wednesday on whether a compromise is possible, or the matter will have to be taken up by leaders themselves, over a summit planned for December 10, according to two diplomats familiar with the meeting in Brussels.

German Finance Minister Olaf Scholz also told his peers the quarrel will have to be resolved by leaders, according to an official familiar with the video summit of euro-area finance ministers.

While Hungary and Poland have long flouted democratic values that other EU countries say they hold dear, officials in Brussels have struggled to discipline them. That changed with the proposal to tie development cash to upholding principles such as judicial independence.

Brussels is investigating the two countries over democratic backsliding, making them prime candidates for cuts to funding that could top a combined 180 billion euros ($215 billion) in the coming years.

Existential Disruption
Morawiecki and Orban demanded changes to the proposal at a first meeting on Nov. 26, a request that other EU members have rejected.

France said that unless they drop their veto within days, it could lead to a severe and potentially existential disruption to the 27-nation bloc still coping with Brexit. One EU diplomat said last week Hungary and Poland are moving toward deeper isolation.

The domestic situation is getting more precarious too, with majorities in both Hungary and Poland backing EU membership, which has helped transform their economies through funding that far exceeds what they pay in.

Polish business groups including banks and employers’ associations sent a protest letter to Morawiecki Monday, saying the veto plan would leave Poland “with no partners and no money.”