[ANALYSIS] EU Recovery Fund and seven year budget: Poland, Hungary & the Rule of Law

Agreements thus far

• Earlier this month, both the European Council & Parliament arrived at an agreement on the budget and recovery fund with expectations centring around a recovery fund of EUR 1.1trl and EUR 750bln respectively. Prior to this, the Council had announced that negotiators arrived at an agreement regarding the rule of law but that some of the legal terms were still outstanding.

Poland & Hungary

• Subsequently, Poland & Hungary have exercised their right to veto any further progress on the recovery fund due to their opposition to the rule of law mechanism. This mechanism refers to the appending proposals being tied to adherence to the EU’s values and particularly the independence of judges and rule of law norms. While the opposition from Hungary & Poland on this matter is well known it is somewhat surprising that they have elected to go-back on the aforementioned council agreement regarding the rule of law.


• Amid this disagreement, it’s worth highlighting that both Hungary & Poland are net-recipients from the EU budget with, as of 2017, Poland benefitting the most of all member states.

EU Reaction

• Following this veto, Senior EU Officials have intimated that there could now be a crisis regarding the budget’s imposition. In particular, focus has been on to what extent this veto will delay the receipt of funds to European nations which are in-need given the COVID-19 situation; recall, in the Summer Italy highlighted that they would need to receive funding early-2021 – a timeframe which, irrespective of this veto, is in jeopardy given how long it took for the EU to come to an agreement on the framework proposals earlier in the year.


• Most recently, members of both the German & French Governments have intimated that while the veto is an issue, they expect negotiations between member states to result in an agreement on the outstanding points within the next few weeks.

Next Steps

• In the immediacy, attention turns to Thursday’s European Council video conference where matters such as the recovery fund and defence updates were already set to take centre stage (note, Brexit could tentatively see an addition to the schedule); after which, the next step would have been for National Parliaments to all give their approval – with all members states expected to do so, aside from the obvious veto from Poland & Hungary, as things stand.


• However, given the veto, Thursday’s meeting will be looked at for any progress on rule of law issues and if an agreement is not attained at this gathering then it will likely revert back to a more ad hoc schedule for any updates ahead of the December 10th European Council meeting.
  

Solutions

• As it stands, the veto is essentially a technical one as the EU could push forward on the rule of law mechanism and as such approve the 7-year budget itself with these veto’s in place; however, the EU requires approval from all 27 member parliaments to increase their own resources ceiling which essentially permits the bloc to borrow sufficient sums on capital markets to satisfy the budgets funding requirements.


• Some journalists have highlighted that one option would be for member states to agree to delay the imposition of rule of law mechanisms in order to allow for the release of funds to commence; alternatively, and very much at the other end of the spectrum, members could elect to continue with progress and essentially force Poland & Hungary into choosing between not adhering to the rule-of-law or receiving sufficient EU funds to facilitate a recovery from the pandemic.


• Note, if no agreement is reached on the next budget than the 2013-20 agreement will be rolled-over until such a time as an agreement can be attained.

17 Nov 2020 - 14:06- Research Sheet- Source: Newsquawk