Hungary has blocked an €18 billion package of EU financial support for Ukraine, deepening a rift between prime minister Viktor Orbán and Brussels and placing more financial pressure on the war-ravaged country.
Budapest told a meeting of EU finance ministers on Tuesday that it would not support a European Commission proposal for loans aimed at helping to plug Kyiv’s 2023 budget gap. Brussels in turn put on hold a decision over Budapest’s own access to €5.8 billion-worth of Covid-19 recovery funds. Hungary’s funding has been held up because of concerns over corruption in the country.
The clash highlights the faultlines between Mr Orbán and his EU partners over support for Ukraine, which needs close to $40 billion from partners next year to maintain public services.
Russia expert András Rácz, of the German Council on Foreign Relations think-tank, described the veto as a “low point in Hungarian foreign policy”.
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Mr Orbán is also blocking the EU’s attempt to introduce a minimum corporate tax in the union, an issue which, like the Ukraine funding, requires the unanimous approval of member states.
Many other EU capitals believe Budapest is wielding its veto as a way of pressuring its allies into endorsing Hungary’s €5.8 billion share of the EU’s Covid-19 recovery fund.
The commission has recommended that EU nations approve the Hungarian recovery plan, but member states on Tuesday delayed the decision when it became clear that Budapest would block the funds for Ukraine.
Daniel Freund, a German MEP, said the veto represented a “full escalation” by Orbán.
Valdis Dombrovskis, commission executive vice-president, said he regretted the delay in the aid to Ukraine. “I have seen with my own eyes how desperate the situation is,” he said. “We must make a first payment next month so Ukraine can survive winter. There is no alternative – we’ll find a way.”
Hungary’s decision to veto the €18 billion loan, the bulk of which requires all member states to approve, prompted other EU capitals to start immediate work on an alternative financing plan for Ukraine that would not require Budapest’s backing. This approach would take longer to get through, however, diplomats warned, deepening the financial hazards faced by Kyiv.
Mr Orbán insisted he remained prepared to support Ukraine on a bilateral basis. Hungary’s prime minister on Tuesday claimed the veto was not about “blackmailing” the EU. He added: “We envision a different future for Europe. One built on strong member states, instead of huge piles of common debt.”
The delay to a decision on Hungary’s own EU funding carries risks for Budapest as well. Hungary first submitted its pitch for a share of the €800 billion NextGenerationEU recovery plan in May 2021, but approval has been delayed by Brussels’ concerns over graft and corruption in Budapest.
If Hungary does not win backing for its recovery plan in the Council of the EU before the end of the year, it risks losing 70 per cent of its entitlement to the funding. One diplomat said the other member states’ decision to start work on financing for Ukraine that would not require Hungarian participation was a way of “taking away the biggest part of Orbán’s leverage” over them.
The delay to Hungary’s funding comes as Budapest faces a difficult year. Inflation is among the EU’s highest and economic growth has been weak.
Central bank governor György Matolcsy told a parliamentary hearing this week that the country faced price rises of 15-18 per cent over the course of 2023, and that its budget and current account deficit made it one of the most vulnerable economies in Europe.
“With this twin deficit, we are second worst behind Romania, except Romania is not targeted on financial markets, while Hungary is,” Mr Matolcsy said, adding that the weakening of its currency, the forint, further exacerbated the inflation problems by raising the cost of imports.
The commission has also recommended a temporary freeze on €7.5 billion in cohesion payments to Budapest because it has yet to deliver 17 commitments on rule-of-law reforms. That decision also needs to be signed off by finance ministers before taking effect.
Diplomats are now considering the possibility of another emergency meeting of the Ecofin council of finance ministers this month to resume discussions over the stand-off.
– Copyright The Financial Times Limited 2022