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Orban Offers to Forgo $7.4 Billion to Escape New EU Scrutiny

Orban Willing to Forgo $7.4 Billion For EU to Leave Him Be

Hungarian Prime Minister Viktor Orban offered to opt out of the European Union’s 750 billion euro ($875 billion) coronavirus fund to escape stronger scrutiny as the bloc prepares to tie aid to democratic criteria.

The proposal, if taken up, threatens to blow open a deal EU leaders sealed in July on a jointly-financed pandemic fund, with rule-of-law conditions that would also apply to regular EU budget payments.

Orban Offers to Forgo $7.4 Billion to Escape New EU Scrutiny

Hungary, which is mired in its worst recession on record, stands to receive 6.25 billion euros in grants from the fund, which is aimed at helping EU states fight the economic fallout from the virus. All 27 members still need to ratify the arrangement.

“That’s a substantial amount of money, especially at the time when every single euro is needed to rebuild the economy,” said Piotr Matys, a London-based strategist at Rabobank.

Orban, whose government is one of two in the EU that’s formally subject to a rule-of-law probe, initially threatened to block the fund unless rule-of-law conditionality was dropped. In a twist on Thursday before leaving for an EU leaders’ summit in Brussels, the premier offered to opt out, proposing in a state news wire interview inter-governmental agreements -- rather than an EU institutional deal -- as a solution.

Hungary would continue to receive regular financing from the bloc under the seven-year budget from next year, Cabinet Minister Gergely Gulyas told a briefing in Budapest on Thursday. In the meantime, the country wouldn’t finance nor benefit from the special virus fund, he said. That fund could “easily be decoupled” from the regular EU budget, he said.

“The solution then, since it’s urgent to get aid to southern members, is that they do this without us,” Gulyas said.

Under the deal struck between EU leaders during the summer, Hungary needs to sign off on allowing the European Commission to raise 750 billion euros in jointly-backed debt, whether it absorbs any recovery fund grants or not. Opting out of the so-called “own resources” provisions isn’t possible without leaving the EU, according to an EU diplomat.

Creating a different vehicle that would raise the debt outside the EU budget, via an intergovernmental agreement, would likely be a lengthy process that would cause delays in the flow of much needed funds to the continent’s battered economies.

Hungary has been a buzzword in the EU for suspected rule-of-law violations since Orban returned to power in 2010 and embarked on an unprecedented consolidation of power for a member state, including by extending political influence over the courts, media, culture and education. The EU has struggled to rein him in despite a multitude of infringement procedures and lawsuits.

A majority of EU states approved a watered-down, German-led version of an earlier European Commission proposal this week to financially sanction rule-of-law violators. Hungary and Poland objected that it went too far, whereas richer nations, including Sweden and the Netherlands, said it was too soft.

Orban’s willingness to take a $7.4 billion hit suggests that even in a diluted form, Germany’s proposal is viewed as a threat by those whom the mechanism may potentially target. It also shows the length the four-term Hungarian leader is willing to go to protect his regime from EU scrutiny. With Hungary’s economy in its worst recession on record, a decision to reject EU aid may prompt a political backlash at home.

Whatever the outcome on the EU virus fund, a delay is “most likely unavoidable,” with harmful consequences for Europe’s economic recovery, German ambassador to the EU Michael Clauss said on Wednesday.

©2020 Bloomberg L.P.