MNI EXCLUSIVE: EU Budget Standoff Set To Drag On Beyond Summit

European Union leaders are likely to need more than this Thursday's video summit to break a deadlock over the bloc's EUR1.8 trillion 2021-27 budget, vetoed by Poland and Hungary over a requirement for member states in receipt of EU funds to meet standards for rule of law, officials told MNI.

Without agreement by Dec. 31, the bloc will run out of money. The two countries also blocked proposed taxes to be raised directly by the EU, which would be a key source of financing for a EUR750 billion pandemic recovery programme, officials noted. The threat to the Recovery and Resilience and Facility at the heart of the Covid plan is not immediate, though, as its disbursements are not due until mid-2021.

It is still possible the German presidency of the EU might push for a compromise at Thursday's meeting, but a physical summit at a later date might be necessary to strike a deal, they said.

"I think this is one for a real summit. It's a political decision and it will be tough and there will need to be high-level political contacts between the key stakeholders," one source said, adding that "tweaks" might not be enough to get the two countries on board.

"It's about political face-saving and Poland and Hungary don't really want a rule of law mechanism at all."

LEVERAGE

EU leaders originally clinched a deal on the budget in July, after the Netherlands, Finland and Sweden agreed to drop demands for the rule of law requirement. But the European Parliament later insisted on that the requirement be restored.

Several officials said the EU is eventually likely to withdraw or dilute the rule of law requirement once again. But another, from one of the states backing the conditionality, said this might not be so easy.

"Depends on Orban - it's not for rest of the EU to come up with solution," the official said, referring to Hungary's Prime Minister Viktor Orban. "Unfortunately, Orban is a man that likes problems not solutions."

The official added: "There is not a chance in hell the EU Parliament will move."

Yet the first source noted that EU leaders had significant leverage over both Hungary and Poland, which are heavily reliant on EU agricultural and cohesion funding.