Europe’s Ghost of Summers Past

Hungary and Poland’s most recent opposition to the EU will delay COVID-19 recovery funds.

By: Caroline D. Rose

On July 21, European Council President Charles Michel sent out a one-word tweet that left few Europeans’ eyes dry and champagne corks popping as early as 5:30 in the morning. After months of tense clashes between EU members over the size and scope of a seven-year budget and COVID-19 recovery fund, Michel’s tweet, “Deal!” informed the world that the EU had finally reached consensus over how to support the economy. 

It took locking EU ministers into a conference room for five days (said to be one of the longest negotiations in EU history), extensive concessions from the rival southern and “Frugal Four” blocs, and a race against economic meltdown to arrive at a recovery package and budget worth $1.82 trillion. 

The deal was hailed as an unprecedented show of European unity in the face of regional factionalism, just in time for summer vacation and ahead of an expected spike in unemployment, COVID-19 infections, and economic struggle across the continent. 

The EU was rescued from the brink.

Or so it seemed. One provision of the summer’s budget agreement and COVID-19 recovery package is now coming back to haunt the EU, and the timing could not be worse. 

As Europe prepares for a second wave, Hungary and Poland have blockaded the EU’s seven-year spending plan in an effort to protest the EU’s linking fund distribution with members’ rule of law – about a month before countries receive budgetary allocations and the bulk of the recovery funds. 

The Hungary-Poland partnership has created a stalemate over European democratic principles, holding the 2021-2027 budget hostage and throwing the reliability of the EU, once again, into question.

Poland and Hungary

Even when the EU’s 2021-2027 Multiannual Financial Framework and COVID-19 recovery package was in its drafting stage in July, several EU leaders figured there was a risk of delay. (Such is the nature of a bloc that needs consensus but can’t seem to agree on anything.) 

They agreed to make budget allocation contingent on individual countries’ respect for EU rule-of-law standards, including anti-corruption measures, electoral integrity, separation of powers, media pluralism and accountable justice and law enforcement systems. At the time, the accord’s draft didn’t really specify what “respect” would entail, but the pressure to settle on a deal kept the rule-of-law accord ambiguous.

It stayed that way until Nov. 10, when the EU Council, the European Parliament and the EU presidency (Germany) modified the budget allocations and clarified the rule of law provision.

The changes respect the budget ceiling set in July but triple the budget’s health program to 5.1 billion euros ($6 billion), saving 13.5 billion euros through retaining competition law fines, and, most notably, introducing a peer review mechanism that would subject countries’ legal systems to fellow EU members’ scrutiny to receive annual budget funds. 

The purpose, of course, is to curb euroskeptic and illiberal tendencies that have obstructed EU consensus and sown seeds of distrust among members, particularly during an economic crisis. 

The architects of the Nov. 10 compromise hailed the rule of law mechanism as a way to ensure taxpayer money was spent responsibly and to encourage its members to respect democratic ideals.

But for Hungary and Poland, the measure was just another form of censorship. 

Both are common targets of EU criticism over their rule of law, but that wasn’t always the case. When they joined the EU in the early 2000s, they were considered qualified, free and fair democracies friendly to the West. 

But in the mid-2010s, the political climates changed; the migrant crisis and financial recession ushered in euroskeptic, illiberal movements that elevated now-Prime Minister Viktor Orban and his conservative Fidesz Party in Hungary and the ruling Law and Justice Party in Poland. 

They both undertook incremental turns away from constitutional democracy by eroding the independence of their judiciaries, attacking freedom of speech among journalists, and practicing repression against political opposition. 

Both were able to use their veto power to avoid EU sanctions under Article 7, but the peer review mechanism in the new budget and the decision to link budget distribution with rule of law raised the risk of European intervention into with the ability to remove voting rights and EU funds – something that could circumvent Hungary and Poland’s ability to protect each other from Article 7 sanctions through veto.

To protect themselves from this perceived intrusion, Budapest and Warsaw opposed the mechanism at all costs. After the European Commission published a 500-page Rule of Law Report and framework for the peer review process, Hungary and Poland announced joint plans for a “Rule of Law Institute,” a network of legal academics (mostly from their home countries) that would counter EU criticism and offer alternative interpretations of Hungarian and Polish rule of law, ultimately undermining the EU peer review process. 

But given the mechanism’s popularity, not to mention the pressure to pass the budget as soon as possible, that wasn’t enough; the Hungarian and Polish governments had to try to stop the mechanism altogether. 

The mechanism itself required only a qualified majority to pass – Hungary and Poland alone could not stop it – so they channeled their efforts into hijacking a measure that required total consensus, vetoing the Own Resources Decision (the prerequisite that allows EU member states to borrow from the 2021-2027 MFF) and effectively paralyzing the EU’s seven-year budget just over a month before funds are supposed to be distributed to member states.

Square One

EU lawmakers were always wary of potential delays to the seven-year budget, but Hungary and Poland’s rule of law campaign has introduced an untimely ideological debate. Historically, regional fragmentation, economic disparity and differing national allegiances have been the EU’s main impediments to continental unity, but COVID-19 and the resulting recession have aggravated the problem. 

Europe’s leaders have once again found themselves in the throes of another marathon of emergency meetings to reach a compromise, this time pressuring the union’s illiberal bloc, Hungary and Poland, to back down before the new year when funds are to be disbursed.

For now, the EU’s long-term budget is paralyzed. Hungary and Poland’s mutual defense and the European Parliament’s commitment to strict rule-of-law measures create gridlock with little room to maneuver. Hungary’s justice minister said the two countries intend to make the process as painful as possible, warning that “nothing is agreed until everything is agreed.”

Importantly, the stalemate over rule of law doesn’t just paralyze decision-making over the mechanism itself; it reintroduces the regional hostility that surfaced over pandemic-related financial assistance. 

The longer the seven-year budget is delayed, the more national economies will be forced to weather the fallout on their own – and the more likely the debate between Europe’s northern Frugal Four and its hard-hit southern economies resurfaces as members seek to exploit and modify the July provisional agreement to meet national interests. 

Similarly, the longer funds are withheld, the greater potential for mounting political resentment and frustration with the European project, particularly among economies that have been most susceptible to COVID-19’s financial shock – Italy, France, and Spain Hungary and Poland are leveraging for better terms. 

But if the EU holds its ground, successive emergency EU meetings and mounting economic damage across the continent could force Budapest and Warsaw to fold. Hungary and Poland haven’t been able to count on allies such as Austria and Romania that have supported illiberal policies in the past. Even other EU members that have criticized Brussels over recent recessions in electoral integrity, judiciary independence, and treatment of journalists and rights groups – Belgium, Bulgaria, Czechia, Estonia, and Denmark – have yet to join Hungary and Poland.

Their campaign to paralyze the 2021-2027 budget is a double-edged sword; both governments are depriving their own countries of tens of billions of euros from the 2021 EU budget when they need them most (especially Hungary, which isn’t expected to reach pre-crisis economic output levels until late 2022 or early 2023). Both may continue to oppose the rule-of-law mechanism to appease their populist, euroskeptic constituents, but they will pay a heavy economic price as financial hardships inevitably mount. 

But even if Budapest and Warsaw back down, efforts to delay budget allocation have chipped away at some of the public trust the EU won during the summer and tapped into deep regional rivalries, reflecting the European project’s never-ending internal battle to maintain unity.

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