MNI: NGEU Dilemmas Loom Over Hungary, Italy – EU Sources

Brussels faces tough choices on its NextGenerationEU programme this autumn as it seeks a solution to the ongoing rule of law dispute with Hungary, as well as potential pressure from a likely new far-right Italian administration that may seek to recalibrate priority projects within its own national recovery plan, EU sources have told MNI.

The more immediate challenge is Hungary, where Brussels is blocking approval of EUR5.8 billion in NGEU grants and which has incurred a further torrent of criticism for being out of step with the rest of the EU by opposing sanctions against Russia for the invasion of Ukraine.

There could well be agreement by September, EU officials suggest, but warn that already poor relations between Budapest and Brussels have deteriorated further over the summer after Prime Minister Victor Orban rejected ideas that his country could become “mixed race”.

Officials point out that the attitude of the more liberal Brussels commissioners, including the Commission’s Executive Vice Presidents Frans Timmermans and Margrethe Vestager, will be key. Orban’s latest provocations could lead them to resist moves to end the stand-off.

UNANIMTY NEEDED

Unless a deal is struck by the end of the year, Hungary will lose all rights to the NGEU funds, one Brussels official noted. That has some officials worried because it could be more damaging to the EU in the long-term as it will at some point need Hungary’s approval for its proposed increase in so-called ‘own resources’ – new EU taxes which will be needed to pay for the NGEU programme.

Other EU sources contacted by MNI are worried that Hungarian voters will not take kindly to new EU fiscal impositions when they have yet to see any benefits. They may withhold support for the Commission’s own resources legislation which requires unanimity among member states – a dilemma that may well force a deal out of sheer necessity.

One source, observing that Hungary could still count on behind-the-scenes support from Poland despite fundemental differences over Moscow, acknowledged the damage withholding funds from Budapest could do. “I trust that (EU President Charles) Michel will finesse some kind of a compromise,” the source said.

The block on Poland receiving NGEU fund over the judicial independence wrangle was lifted in the wake of Russian aggression in Ukraine. “Poland thinks that it got some indulgence on its own rule of law problems thanks to its role in the Ukraine war. Orban's real EU problems with rule of law started when he broke the EU unity on Russia sanctions on energy,” the source said.

The advent of a far-right Italian government in the Sept. 25 general election could provide Orban with a stronger ally if, as expected by EU officials, Rome would then push for a rejig of its own NGEU programme to channel funds into projects more in line with its domestic policy priorities.