Faced with the blockage of the EU Recovery Plan and the European Budget for the next seven years after the veto of Poland and Hungary – and in the meantime the backing of Slovenia -, the question arises what will happen next. Although EU officials are appalled, this veto comes as no surprise. Only those who understand nothing (or very little) about Europe, could have thought the moon is made of cheese and believed that the compromise of July 21 was going to provide Europe with a recovery plan of 750 billion euros and a budget of over 1.1 trillion euros for the next 7 years.
In fact, the July 21 compromise already bore the seeds of today’s failure. By returning to conditionality of European aid in the name of a ‘rule of law’ with the agreement between the European Council and the European Parliament last week, the veto could be predicted. With ill-defined outlines and essentially directed against Poland and Hungary, it had all it takes to have these two countries against it. Those who believe that leaders Viktor Orbán and Jaroslaw Kaczyński were going to give in and go back on what they had obtained at the Council of July 21, namely a very flexible conditionality and without real effects, do not seem to know them very well. With an economic situation better than that of Southern Europe (including France), these member states are not so dependent on the aid from Brussels as one would think. A good lesson for bureaucrats and other diplomats would therefore be to keep in mind that these countries place their sovereignty far above questions of money.
Even though Poland and Hungary are both major recipients of EU funds and are affected by the second wave of the coronavirus, they have no reason to give in now. Especially as, with the slowness of European procedures, they would in any case have significant delays before receiving stimulus funds or the 2021-2027 budget. In addition, there are still significant leftovers from previous programmes, which makes it much easier to use their veto. According to Zbigniew Ziobro, the Polish Minister of Justice, “this is not about the rule of law, but it is rather an institutional, political enslavement and a radical limitation of sovereignty. The proposed mechanism would only endanger democracy and the sovereignty of the Polish people”.
Furthermore, the compromise of July 21 only concerned expenditure and left unclear the question of how to find the revenue to complete the budget. The various suggestions from the European Commission (external and internal carbon taxes, financial transactions, GAFA) seem to have received very little support, especially in the Netherlands, Germany, Austria and Northern Europe. Even if there was no Hungarian and Polish veto, the budget discussion was off to a bad start, with the need for parliamentary ratification in twenty countries and the search for new own resources. Poland and Hungary knew very well, by using their veto power, that the negotiations were far from over and that they had months and months of negotiations ahead of them.
There are still multiple potential obstacles for the bloc’s €1.8 trillion package to become a reality. To begin with, the seven-year budget must gain the support of the European Parliament and unanimous support in the Council before it can enter into force. Hence, we seem to be far away from such a scenario: without conditionality no support from Parliament, and with conditionality a veto of the two countries.
With regard to the decision on own resources, there are no good prospects either, as it needs unanimous support in the Council, before being ratified by the national parliaments of the Member States. Even if a temporary solution could be found in the Council with Poland and Hungary, the national parliaments of Budapest and Warsaw will have the possibility of vetoing the financing modalities of the 750 billion stimulus fund – adding additional pressure on negotiators. Moreover, some parliaments in countries like Finland have already made it clear that they are unlikely to ratify the own resources decision if lawmakers feel that Hungary and Poland have received too many concessions on the issue of the rule of law. Also several Northern European parliaments will be very careful about the EU’s ‘new own resources’, in order to prevent them from being sustainable. Many countries are for example opposing taxes on GAFA and on financial transactions, which hence seems to be squaring the circle.
Faced with this deadlock situation, the most likely scenario is that the EU will not have a budget for at least until 2021. As a consequence, it will have to live with the emergency system of the provisional 12ths of the previous year. This however prohibits any new policy, such as health for example. The Union’s civil protection and health programme of 9.7 billion euros, included in the recovery plan, would hence not become a reality.
Yet, another scenario could be an attempt at institutional tinkering to ‘save’ the stimulus plan, outside the EU budget – as an intergovernmental agreement between countries. While European Commission officials ruled out this route last spring because it would be too complicated and time consuming, it is perhaps an option that can be explored again. Nevertheless, it may lead to an increase in the part ‘loans’ compared to the part ‘grants’, which is not good news.
NOTE | This opinion was produced with the contribution of Flo Van den Broeck
