The Hungarian PM has fallen into line with EU leaders after a €5.8 billion deal
Late on Monday night, an agreement was reached in the EU’s long-running “rule of law” tussle with Hungary. Brussels’s plan to financially punish the miscreant member state will become reality but, in classic EU style, a compromise allows both sides to claim victory. Viktor Orbán has allowed himself to be bought off, having created significant political problems for the Union in recent weeks.
The EU will approve Hungary’s pandemic recovery fund worth €5.8 billion and reduce the proportion of regular funding programmes to be withheld from Budapest, from 65% to 55%. In return, Hungary has relented in its controversial opposition to EU implementation of a global minimum corporation tax and loans for Ukraine.
The squeaky wheel gets the grease, and it was always likely that this saga of mutual blackmail would end in a compromise. Total victory for either side would have been disastrous: a more complete funding block would have alienated Hungary and paralysed the EU for good, while failure to punish Orbán would have left the European Commission’s reputation in tatters.
Orbán’s hawkish opponents think Hungary shouldn’t get any EU funding at all, but Budapest turned the dispute on its head by displaying a willingness to torpedo the EU’s political agenda. Orbán can now portray the reduced funding cuts as a hard-won victory; Hungarian sources claim he has also secured a form of participation in the new global minimum corporation tax which won’t entail raising low domestic tax rates.
The strongman sorely needed a victory with the Hungarian economy teetering close to calamity. Inflation is at 22.5% and the governor of the national bank last week fired a remarkable broadside at the government’s economic policy.
The government portrays EU sanctions on Russia as solely responsible for the current difficulties, but uncertainty over EU funding has been another major negative factor. The Hungarian Forint exchange strengthened significantly on Tuesday morning – and in typical Orbán style, a 15% increase in pensions was announced hot on the heels of the agreement in Brussels.
Yet while the agreement was in everyone’s interests, it would be a mistake to think it means the end of the rule of law saga. Pandemic recovery funds for Hungary will only be released if Budapest meets a set of milestones set by Brussels, and one need only look at the bloc’s treatment of fellow rebel state Poland to see how this is likely to pan out. The EU still hasn’t released money from Poland’s approved fund, and many assume Warsaw won’t see a cent until general elections next autumn, when Poland’s current nationalist government will be challenged by arch-Europhile Donald Tusk.
And although the EU claims its rule of law measures are motivated solely by a wish to safeguard democracy, there’s a clear political motivation to the proceedings. Ideological hostility to Hungary stems from Orbán’s anti-LGBT measures and his ambivalence on Ukraine, and these issues aren’t going away any time soon. Monday’s agreement will bring about a détente in EU relations, but more trouble may be expected down the line, with Orbán having already shown his willingness to bring the bloc to a shuddering halt.