Hungary Threatens to Block EU’s Landmark Joint-Debt Deal

(Bloomberg) -- Hungary may not ratify the European Union’s 750 billion-euro ($890 million) coronavirus fund until it gets reassurances that it won’t risk punishment over its sliding democratic standards.

Budapest has informed its EU peers that the bloc must first agree on a rule-of-law clause attached to the aid’s disbursements before Hungary’s parliament ratifies the jointly-issued debt that will fund it, according to an EU diplomat familiar with the matter. Premier Viktor Orban wants the mechanism to be as weak as possible, minimizing the risk of sanctions for offenders.

Hungary’s position was communicated to the European Parliament by representatives of the German presidency of the EU.

The latest twist highlights the risks ahead for the agreement between EU leaders, which was reached in July but left many key details to be worked out. In addition to unanimous ratification by national parliaments, the accord also needs the approval of the fragmented EU Parliament, where all the main factions demand the strongest safeguards possible.

A mechanism that would discontinue disbursements of funds to member states not respecting the independence of the judiciary and undermining media freedom was one of the key conditions set by rich countries, including the Netherlands and Finland, for agreeing to back the joint-debt issuance.

The objective of a quick deal to finance economic recovery from the steepest recession on record, and of effectively safeguarding rule-of-law can’t be met at the same time, the EU diplomat said. The diplomat warned against seeking a perfect outcome, as countries in the South of Europe are eagerly awaiting for the funds amid an unprecedented economic slump.

Hungary, which is subject to an ongoing EU probe over the erosion of the rule-of-law, has sought to dilute rules to link EU funding to democratic standards. The EU is scheduled to come out with rules for the funding in the autumn.

Hungary’s Justice Ministry didn’t immediately reply to requests for comment.

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