Commission considers options for recovery fund without Hungary and Poland 

Hungarian Prime Minister Viktor Orban (R) and Polish Prime Minister Mateusz Morawiecki (L) attend a press conference after their meeting in Budapest, Hungary, 26 November 2020. [EPA-EFE/Andrzej Lange POLAND OUT]

The European Commission is assessing options to circumvent Hungary and Poland’s veto to the EU budget and the recovery fund, and could come up with a proposal early next year if their blockade remains, a senior EU official confirmed on Wednesday (2 December).

The Commission’s “central scenario” is that a solution will be found by late next week, when EU leaders will meet on 10-11 to discuss the two countries’ veto on the €1.8 trillion package which includes the €750 billion recovery fund to counter the economic fallout of the pandemic and €1.1 trillion multi-annual financial framework, the EU’s next seven-year budget.

Poland, Hungary propose two-track way out of EU budget deadlock

Poland and Hungary reaffirmed on Thursday (26 October) their opposition to tying EU finds with the rule of law in member states and instead offered their own proposal for breaking the deadlock that is holding back the EU’s €1.81 trillion seven-year budget and the recovery fund.

Hungarian and Polish leaders, Viktor Orban and Mateusz Morawiecki, have insisted that they won’t give their blessing unless the Rule of Law conditionality attached to the EU funds is substantially watered down or scrapped.

If both member states persist with their veto, a senior EU official was “pretty confident” that a solution could be found and implemented “quite quickly” to “replicate the effects” of the recovery fund without them.

The Commission could come as early as January with a “bridge” solution based on EU law. The options being considered include enhanced cooperation among member states or a system of national guarantees to back the borrowing of €750 billion for the fund.

The official declined to enter into details, and did not clarify what would happen with Hungary and Poland’s portion of the recovery fund. 

Even if member states are forced to use the bridge solution, recovery funds could still be channelled to member states by next summer as planned, once the ratification process of the mechanism is completed in member states.

Budapest and Warsaw’s opposition to the EU budget deal has further complicated the transition to the next EU’s seven-year budget and the adoption of the draft budget for 2021 under the next MFF.

The deadline for the European Parliament and member states to reach an agreement on the annual budget is 7 December.

Given that there is no unanimity for the new MFF, under which the 2021 draft budget was prepared, the Commission will have to put forward a new draft budget for 2021 based on the budgetary ceilings of the current MFF.

The proposal would be ready by early next year, and would be adopted by the European Parliament and the member states by qualified majority, leaving no prospect of any vetoes.

EU institutions strike budget deal on rule of law mechanism

The European Parliament and the Council representing the EU27 reached a preliminary deal on linking the disbursement of EU funds to rule of law after five rounds of talks, clearing a major hurdle in the wider negotiations on the bloc’s budget.

Until the adoption of the new budget for next year is completed, the EU will have to operate under the ‘provisional twelfths’ system for the first time since 1988.

This means that each chapter of the budget will be funded monthly, up to a maximum of one twelfth of its appropriations of the previous year or of the draft budget, whichever is the lowest.

The EU, however, won’t be able to commit to new projects under most of its programmes, such as Cohesion or Horizon, and rebates would not be paid to some of the net contributors to the EU budget.

In addition, around €25-30 billion in Cohesion funds will be lost even once a new budget for 2021 is adopted under the current MFF, given that the 2014-2020 budget has lower budgetary ceilings compared with the next seven year budget.

[Edited by Benjamin Fox]

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