Hungary blocks approval of 18 billion euro financial aid to Ukraine

Hungary blocks approval of 18 billion euro financial aid to Ukraine

Hungary has blocked the approval of a new EU financial assistance program for Ukraine worth 18 billion euros, which the Kyiv authorities urgently need to cover their public deficit inflated and keep the economy going in the context of the Russian invasion.

The aid is designed to be disbursed during the year 2023, amounting to 1.5 billion euros per month.

“Hungary is not in favor of amending the financial regulations,” Hungarian Finance Minister Mihály Varga said Tuesday at a meeting of finance ministers.

Hungary’s veto triggered a domino effect and prompted ministers to delay three other key votes, including one on an internationally-backed deal to reform corporate taxation.

“Ukraine is a country at war, it desperately needs our support and we simply cannot allow any member state to delay and derail this financial support from the EU,” the vice-president said. from the European Commission, Valdis Dombrovskis.

“We have to deliver it, one way or another, and we will.”

Hungary is set to see €7.5 billion of its allocated share of the EU budget frozen after failing to complete a series of reforms aimed at tackling, among other things, corruption, irregularities in public procurement and conflicts of interest of government officials.

The unprecedented freezing of EU funds was recommended last week by the European Commission under a new conditionality mechanism, designed to protect the bloc’s financial interests.

The European Commission’s recommendation was then forwarded to the finance ministers, who have the final say. But the decision added to a long list of things to do, which led to the political intertwining of several files.

Tuesday’s packed agenda included votes on:

  • An agreement negotiated by the OECD to establish a minimum tax of 15% on multinational companies.
  • Financial aid of 18 billion euros to help Ukraine cover its budget deficit in 2023.
  • The freezing of 7.5 billion euros of EU cohesion funds earmarked for Hungary.
  • The approval of the Hungarian COVID-19 recovery fund, worth 5.8 billion euros in grants.

The tax deal has been under discussion since mid-2021, as it needs to be transposed into EU law to enter into force. Hungary was the only country who opposed the deal when it voted in June, arguing the reform would hurt European competitiveness and put jobs at risk.

More recently, Hungary expressed his displeasure concerning the €18 billion financial assistance package for Ukraine, which would be financed by the issuance of new common EU debt.

Brussels is keen to approve the 2023 envelope as soon as possible after a highly publicized failure release the full €9 billion pledged to Kyiv earlier this year.

These two files – the tax deal and the financial aid – requiring unanimity to be adopted, Hungary was able to use its right of veto to put pressure on the two other decisions concerning its public coffers – the 7.5 billion euros euros from the cohesion fund and the 5.8 billion euros in recovery grants – which only require a qualified majority.

Basically, the recovery plan must be approved before the end of the year, otherwise Hungary would lose 70% of the pre-allocated liquidity.

In search of “alternative solutions”

Ultimately, the four votes became linked, despite their separate nature.

“I would like to emphasize that I consider all these topics as one package,” Czech Finance Minister Zbyněk Stanjura said on Tuesday morning before heading to the ministerial meeting.

The Czech Republic currently holds the rotating presidency of the Council of the EU and is responsible for setting the agenda and leading the political debate.

Whether ministers would vote on all four issues has been at the center of speculation in Brussels in recent days, with diplomats saying it will all depend on the mood in the room.

After an exchange of views over breakfast on Tuesday morning, during which Hungary’s opposition was clearly expressed, ministers decided to postpone the key votes.

The delay in aid to Ukraine is particularly worrying for the EU, as the war-torn country has been plunged into obscurity following a brutal barrage of Russian attacks.

Stanjura and Dombrovskis even suggested that the financial package could be unlocked through enhanced cooperation, a system that creates a separate track with a smaller group of member states.

“We will not be discouraged. Our ambition remains to start disbursing our aid to Ukraine in early January,” Mr. Stanjura said, asking the Council team to examine “alternative” solutions that could circumvent the unanimity requirement.

“We will seek a solution supported by 26 member states.”

Reacting to the news, Hungarian Prime Minister Viktor Orbán said there was “no veto, no blackmail” and that his country was ready to provide financial aid to Ukraine “on a bilateral basis”. .

“EU common debt is not the solution. If we keep moving towards a debt community, we cannot go back,” Orbán said on his Twitter account.

“We envision a different future for Europe. A future built on strong member states, instead of huge piles of common debt.”

It is unclear when the four files could be voted on, as no further meeting of EU finance ministers is scheduled before the end of the year.

The Czech Republic could, however, convene an emergency meeting to advance the blocked files.

In the meantime, the ministers instructed the European Commission to submit a new evaluation of the Hungarian cohesion funds to take into account the reforms that Budapest has carried out so far. The new analysis could degrade the fine of 7.5 billion euros.

This article has been updated to include new feedback and developments.

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