France Says Dust-Up With Poland and Hungary Puts EU at Risk

The dogged opposition of Poland and Hungary to the European Union’s budget and recovery package has turned into a dangerous stand-off with nations in deep recession in dire need of help to cope with the pandemic.

Unless these two holdouts drop their veto on the deal within days, France warned of severe and potentially existential disruption to the 27-nation bloc still coping with Brexit. The alarm came at a meeting of EU envoys in Brussels on Friday, when Polish and Hungarian ambassadors dug in. They object to the disbursement of 1.8 trillion-euros ($2.2 trillion) being tied to democratic standards they are accused of falling short of.

The European Commission’s representative said that if no breakthrough is reached by Dec. 7, then the EU will have to operate via monthly emergency budgets as of the start of 2021. That would mean financial paralysis and the progressive suspension of all but essential spending.

“I reiterated that Poland is prepared to veto the new budget unless the solution that is good for the whole EU, and not just some of its members, is found,” Polish Prime Minister Mateusz Morawiecki wrote in a Facebook post after speaking with Germany’s Chancellor Angela Merkel.

The defiant comments came as the French ambassador in the non-public meeting was warning that the quarrel could signal a “fundamental rupture,” which raises questions about the very future of the EU, according to two diplomats present in the conversation.

The spat over the strings attached to the pot of EU funds has degenerated into a game of chicken between two ideologically-committed sides. It points to a growing divide between the wealthier west and some nations in the formerly Communist east that were meant to find common cause under one European identity and instead are at odds over the nature of democracy.

The nationalist government of Hungary’s Viktor Orban has been pushing the EU’s button for a decade in his defiance of the fundamental EU principle of the rule of law. At one time he was dismissed as a lone troublemaker on the EU’s periphery, but he’s won over a number of eastern allies.

France Says Dust-Up With Poland and Hungary Puts EU at Risk

He’s tag-teaming with Poland, the biggest and most populous nation in eastern Europe, casting doubt over their future in the bloc even as their economies have relied on billions of euros in handouts over the years. They see any link of money to rule-of-law standards as an infringement on their sovereignty.

Both are subject to probes over democratic backsliding, making them prime candidates for cuts to funding that could top a combined 180 billion euros in the coming years. So in theory, they have an incentive to back down, if not in the immediate short term.

To unlock the funds one of three things must happen: Someone backs down; an 11th-hour compromise is struck; or the two holdouts are bypassed.

No Progress

France was among those who floated the idea of launching the 750 billion-euro stimulus package, which is separate from the EU’s regular budget, via an inter-governmental agreement that would get around a veto.

During the discussion, none of the bloc’s other ambassadors voiced any support for the position of Budapest and Warsaw or a willingness to change the mechanism, which was agreed after difficult negotiations with European lawmakers. Germany, which holds the rotating presidency of the EU, told the envoys that there has been no progress so far in the talks.

Rich countries, such as the Netherlands and Finland, which are net contributors to the EU’s budget and lend their stellar credit rating to the bloc in order to raise jointly-backed debt in capital markets, say the rule-of-law provision is a basic requirement.

Compromise Hopes

Still, some officials remain confident that a compromise is the likeliest scenario and that the current situation is a game of who will blink first.

When it comes down to it, there will be flexibility on both sides given how much is at stake, according to a person in Merkel’s coalition familiar with the discussions, who also said the chancellor is personally involved in trying to solve the standoff.

While the remaining EU countries have made it clear a possible compromise will not change the substance of the rule-of-law mechanism, officials are looking into other ways to give Hungary and Poland an honorable way to back down from a position deemed to be untenable.

Two EU officials view the situation as serious and as a major topic in December’s summit. They are also reading the political tea leaves, and see Orban seeking to drag things out so that any outcome only comes into force after 2022 parliamentary elections.

Merkel and her negotiating skills as a veteran leader are seen as key, the officials say, even as she will be serving out her final term as chancellor.

©2020 Bloomberg L.P.

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