EU to freeze funds until Hungary delivers on rule of law

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Hungary is increasingly likely to get its post-pandemic recovery plan approved, but that doesn’t mean Budapest will quickly unlock all the EU money it has been seeking to tap. Not only does Hungary have to address rule of law issues to access its recovery funding, but it also faces a partial freeze on payments of regional aid because of corruption concerns.

We’ll look at the European Commission’s concerns and how its approach is likely to land in the European parliament.

With the end of the year fast approaching, we’ll hear from the Swedish foreign minister about the priorities of his country’s presidency in the first half of 2023. Unsurprisingly, Ukraine features prominently — but so do post-Brexit relations with the UK.

On the foreign policy front, EU council chief Charles Michel is heading to Beijing next week, for a first face-to-face meeting between a top EU official and Xi Jinping since 2018. (More here.)

As for the emergency energy council taking place in Brussels today, we’ll bring you the latest on why countries on both sides of the argument about price caps are angry at the commission’s recent proposal. On the other price cap, to apply to seaborne Russian oil as part of G7 sanctions, EU ambassadors yesterday failed to agree on the proposed $65-70 price corridor and will resume talks today.

Yellow light for Budapest

The EU commission is getting close to approving Budapest’s slice of the post-pandemic recovery funds, most of which would have lapsed if not greenlit by the end of the year, writes Sam Fleming in Brussels.

Approval of the recovery fund, which will need to be signed off by the college of commissioners and council of the EU, would be a significant victory for Viktor Orbán, who has been trying to win commission approval since May of last year.

But that doesn’t mean EU money will start flowing freely in Budapest’s direction.

In a separate but related process, Brussels is preparing to suspend a share of Hungary’s cohesion funding after judging that the country failed to fully deliver on promised reforms aimed at protecting EU money from corruption, according to people familiar with the discussions. 

The likely decision, which also needs council approval, would mean €7.5bn worth of Hungarian cohesion money getting frozen until Orbán’s government delivers fully on its reform pledges. (That is roughly a third of Hungary’s cohesion funding under the current 2021-27 EU budget.)

It comes even after Hungary told the commission on November 19 that it reckons it has fully lived up to its promises to institute 17 measures tackling corruption, including the creation of a new “integrity authority”. 

Hungary’s failure to deliver fully on its promised rule of law reforms could in turn delay the start of payments from the Covid-19 fund, putting billions of euros more of EU money into doubt. Budapest will also have to address concerns about judicial independence if it is to start tucking into the recovery fund cash.

Commission president Ursula von der Leyen has been under intense pressure to take a tough line with Orbán from the European parliament, which in September declared Hungary to be an “electoral autocracy”.

The commission’s plans, which are still under discussion, appear to acknowledge those deep concerns, which are shared in some member states, while at the same time leaving open a path for Orbán’s government to unlock EU funding.

“It does justice to the serious rule of law concerns about Hungary,” said one EU diplomat.

Chart du jour: Shallow recession

Business activity in the eurozone has contracted for the fifth consecutive month but there are signs of improvement in confidence, according to a survey of companies published yesterday.

Don’t forget about Brexit

Sweden will use its forthcoming EU presidency to push for better relations with the UK as well as bolstering support for Ukraine and transatlantic bonds, writes Richard Milne in Stockholm.

Tobias Billström, the new Swedish foreign minister, told Europe Express that Ukraine would be the top priority for Stockholm’s stint running the council of the EU from January.

“Russia’s aggression against Ukraine will be on top of our presidency agenda. We are ready to contribute as much political, financial, military, and humanitarian support as possible to Ukraine as long as necessary,” the foreign minister added.

His centre-right government has already put its wallet where his mouth is, promising a ninth support package to Ukraine bigger than all previous ones and including both one air defence system and ammunition for a second.

Billström also laid out two other areas Sweden hoped to concentrate on during its presidency, as well as the usual crises and business that comes with it.

“The overall relationship between the UK and the EU is something where we would like to see an improvement, especially after the hard times straight after Brexit. Sweden, with its longstanding friendship and good relations with the UK, is in a rather good place to pick up on this important line of political development,” he said.

He said he hoped to “move the dossier” on the contentious Northern Ireland protocol, but declined to go into specifics. He added that improving the “transatlantic link” would be another priority for Sweden.

Sweden’s new government, in power for just over a month, has proved controversial owing to it relying on the support of the far-right Sweden Democrats to ensure a majority in parliament. Billström underscored that the government had a “high degree of executive power” on foreign policy, and that “the key issue is that they are not in government”. Swedish media have noted that in certain areas such as migration the far-right party is keen to have influence over the country’s EU policy.

Back to square one

If you thought the EU commission has put an end to quarrels over the scope and level of a proposed gas price cap, think again. Energy ministers arriving for an emergency meeting in Brussels today are likely to revert to their old arguments, given that the commission’s recent proposal has already been branded “a joke”, writes Alice Hancock in Brussels.

Under its proposal made Tuesday, the commission said a capping mechanism would be triggered when two conditions are met: if the gas price for the month ahead exceeds €275 per megawatt hour for two consecutive weeks and if that price is €58 higher than that of liquefied natural gas for 10 consecutive days.

Meeting either of those criteria would not have happened even when gas prices hit record highs during August, at the height of concerns over gas supplies and just as Russian energy major Gazprom cut its supply to the bloc by around 90 per cent.

Spanish energy minister Teresa Ribera said on Tuesday that the proposal was “manifestly rejectable” and “would solve nothing”. Kostas Skrekas, Greece’s energy and environment minister, told CNBC that the system the commission had presented “is not in fact a price cap. Nobody can stand buying gas at this expensive price for a long time.”

On the other hand, despite the commission’s efforts to build in a series of safeguards to ensure that financial stability in energy markets and security of supply are maintained, traders and EU diplomats opposed to the cap have continued to issue dire warnings. (Read more here about an estimated $33bn blow to the market.)

“It should never have been proposed,” said one senior EU diplomat. “This is very risky and, if I am being politically correct, completely uncalled for.”

What to watch today

1. EU energy ministers meet in Brussels

2. UN to hold special session on Iran at the Human Rights Council in Geneva

Notable, Quotable

A lawfully held referendum would have important political consequences relating to the union and the UK parliament

• No IndyRef 2.0: The UK Supreme Court has ruled that the Scottish government does not have the legal authority to hold an independence referendum without agreement from Westminster, scuppering Edinburgh’s plan to hold a vote next year.

• Helicopters for Ukraine: The UK is sending helicopters to Ukraine for search and rescue operations, the first piloted aircraft to arrive in the country since Russia’s full-scale invasion in February.

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