Recovery Fund, risks for Europe after veto of Poland and Hungary

Last updated on November 28th, 2020 at 06:20 am

Risks for Europe: An unprecedented set of European resources (around 1,800 billion euros) risks of being frozen. If the heads of State and Government do not overcome the impasse caused by the veto imposed by Poland and Hungary at the European Council. The crux concerns respect for the rule of law. Poland and Hungary refuse that the disbursement of funds is subordinated to this, which is a founding principle of Europe, explicitly confirmed by a resolution of the EU Parliament. The mechanism provides that if one of the Member States violates the shared basic principles, including the independence of the judiciary from the executive power and freedom of expression, aid can be suspended by majority vote, while the two countries involved would like to unanimity.

The close link between the EU budget and the Recovery Fund.

The deal already for the 2017-2021 multi-year funds is worth 1,074 billion euros. To that, the EU added the 750 billion of the Recovery Fund. If member States not approve the budget by the end of the year, the European Commission cannot start the procedure for placing the 750 billion euros of Next Generation Eu loans. 

The consequence is twofold. 

The payment of the relative sums to be disbursed to the Member States will suffer an inevitable, further delay, and all this can only seriously affect the economies of the Old Continent grappling with the crisis triggered by the COVID-19 pandemic. The other consequence is that, in the absence of the green light to the multi-annual budget of the Union, the European Union must face the economic crisis without a real fund. And in provisional exercise, would loom for the second time in two years. If the beginning of the reference year, the annual budget has not yet been adopted, which becomes inevitable if the Multiannual Financial Framework is not approved, the provisional twelfths regime is triggered. That means the expenditure made monthly by the budget chapter cannot exceed one-twelfth of the appropriations authorized by the budget of the previous year or in the draft budget proposed by the Commission. Then the EU cannot fund any new expenditure. Only a few items of investment will be honored, such as subsidies to farmers, the salaries of Union employees, humanitarian aid, cohesion projects already underway. Instead, rebates for the countries benefiting from it would be suspended. And above all, there would be no funds available for the new Union policies, such as the Green Deal.

The current German presidency is working these days to identify a reasonable compromise that can break the deadlock. 

Chancellor Angela Merkel is a skilled and experienced negotiator. And therefore, an agreement on the wool thread seems still possible. In consideration of the specific interest of the Polish and Hungarian governments in being able to benefit from European funding, 62 and 20 billion respectively, which already in the current expenditure framework they see the two countries beneficiaries of the Union’s resources. The hard-line of Polish Prime Minister Mateusz Morawiecki and his Hungarian counterpart Viktor Orbàn seems to meet the favor of most of their respective public opinions. While the other European countries (starting with the so-called frugal) seem unwilling to give in on an aspect considered an impassable stake. The agreement reached in Brussels after the negotiation marathon, in July 17-21, had deliberately faded on the subject of respect for the rule of law. 

Possible alternatives.

Angela Merkel does not currently contemplate any plans B, should the impasse not be overcome. However, we are discussing possible ways out, starting with the use of “enhanced cooperation,” as suggested by France and the Netherlands. An instrument envisaged by the Treaties but rarely used up to now. Alternatively, the 25 member States could create an intergovernmental agreement to start the executive phase of the Recovery fund, excluding Warsaw and Budapest. But Angela Merkel seems very unwilling to exclude Poland in particular. The European Parliament chaired by David Sassoli is watching over the whole case, and unlikely he could make himself available to step backward on the subject of respect for the rule of law.