EU funds 13 December 2023, 9:29am

Hungarian government sets conditions for vote on Ukraine funding

Portfolio

If the EU member states were to organise the financing of Ukraine outside the common EU budget, and if this financing package were to be for 1 year instead of 4 years, Hungary would be willing to join in - this is what Hungarian PM Viktor Orbán's political director Balázs Orbán said in an interview with Bloomberg on Tuesday evening. All this suggests that the Hungarian government would also contribute to a potential EU package on a bilateral basis, something that has not been explicitly mentioned so far. At the same time, the PM's political director also said that the government does not support a decision at this week's EU summit on the opening of accession talks with Ukraine, and wants to postpone any decision on this issue.

In the interview, Balázs Orbán also raised a quite astonishing tying issue. According to him, if EU decision-makers insist that the 4-year EUR 50 billion financing programme for Ukraine should be financed from the amended common EU budget (the 2021-2027 multiannual financial framework [MFF]), then in exchange for Hungary's vote, the European Commission should unblock all EU funding frozen for Hungary, not "only" the EUR 10 billion cohesion funding, which, as Portfolio reported, is expected to be unblocked tomorrow at the earliest.

As the news agency points out, this is an impossible category in Brussels, given the rule of law disputes, and it only serves to raise the stakes, and it shows that the Hungarian government has set the bar very high to agree to increase the MFF budget to finance Ukraine. So the government is rather in favour of, and willing to contribute financially to a bilateral package outside the MFF for a period of 1 year.

According to the Prime Minister's political director, the current start of Ukraine's EU accession negotiations is a "red line" for the Hungarian government, because the government believes that Ukraine has not yet reached the criteria to start these formal negotiations.

That is why the government wants to ensure that no decision on this issue is taken at the EU summit in Brussels this Thursday, so as not to send the wrong signal to Ukraine. He said that "sending a negative signal to Ukraine is the opposite of what Hungary wants".

He clarified that "Hungary's EU funding and Ukraine's funding are two separate issues", adding that "if the EU insists that Ukraine's funding should come from a modified EU budget, the two issues will be linked." What he means is that in this scenario, the Hungarian government would demand a very high price in exchange for approval, namely that all EU funds be released to Hungary by the European Commission. The text of the interview mentions €30 billion, but if we add up the €22 billion of cohesion funds and the €10.4 billion of the overall recovery programme, that would be even more. Of this, some EUR 10 billion in cohesion funding could be released with the decision expected as soon as today, and EUR 0.92 billion in advance from the REPowerEU chapter of the recovery programme following last week's decision. The bulk of the EU funds would therefore remain blocked due to the rule of law procedure and the expectations of the super-milestones. The government would therefore want to free up these funds without meeting these expectations in exchange for agreeing to provide Ukraine with a budget envelope in the mid-term review of the MFF.

The political director also stated that the government would not support a 4-year financing programme for Ukraine, and as the above tying is an impossible category from a Brussels perspective, and probably in response to strong messages from the German and French governments, he said that the government would "consider agreeing" to a 1-year financing programme for Ukraine if it did not involve a modification of the MFF. In practice, this means that if a financing scheme for Ukraine were to be set up on a bilateral basis, the Hungarian government could agree to it and would arrange the mid-term review of the MFF independently (without making room for the Ukraine financing scheme).

Another important message is that the Hungarian government would consider an offer from Brussels to increase funding for border protection (a recurrent demand of the government to have the Commission partly pay for these costs) and to provide additional EU support to increase the economic competitiveness of the EU community.

The overall message of the above is that since the other 26 member states would be able to solve the financing plan for Ukraine outside the MFF even if Hungary vetoes it, and thus the power of the Hungarian veto would be weakened, the Hungarian government would also join this solution to avoid the stigma of being the only one to stay out. This comes after yesterday's Financial Times article - which Portfolio reported on - that the major member states and the European Commission have already started working on a Ukraine programme outside the MFF that would override the Hungarian veto, but are keeping it confidential because the primary objective is (was) to reverse the Hungarian position. As one source explained to the news agency, setting up a financial instrument for Ukraine outside the EU budget is more time-consuming and costly in terms of interest than within it, and no one would want to go in that direction, but it would be irresponsible not to have a plan B for the community. Apparently there is one that the Hungarian government would already agree to, taking the community well away from its original idea of a 4-year financing programme for Ukraine within the MFF.