02 December 2020

POLITICO: How Europe can bypass Poland and Hungary’s vetoes

EU partners need a credible option to circumvent rule-of-law deviants tying up recovery funds. European partners should prepare for bypass surgery, if necessary, to overcome the blockage by Hungary and Poland of the EU’s urgently needed COVID-19 recovery package.

Budapest and Warsaw are threatening to veto the bloc’s €1.8 trillion long-term budget and coronavirus recovery fund in a cynical attempt to shield themselves from seeing payments linked to respect for the rule of law.

Rather than bow to their demands, the other 25 EU states should find a way to work around this attempted hostage-taking by two of the biggest beneficiaries of European subsidies.

If the painstakingly negotiated spending and revenue plan is not agreed unanimously this month, the EU will fall back on hand-to-mouth emergency funding based on the previous year’s budget. All new programs — including grants to the countries hardest hit by the pandemic and investments in the transition to a low-carbon, digital economy — would be delayed.

Central Europe’s illiberal duo of conservative nationalists — Hungarian Prime Minister Viktor Orbán and Polish Law and Justice party leader Jarosław Kaczyński — think they have the rest of Europe over a barrel. They expect they can force their peers to back down at a mid-December summit on the rule-of-law mechanism, which they claim is a political weapon to punish them arbitrarily.

After years of systematically dismantling the impartiality of their courts, the neutrality of state institutions and media freedom, Warsaw and Budapest are banking on a last-minute compromise to remove or defang any measure that would condition EU payments on judicial independence.

They are trying to exploit a public health emergency to secure carte blanche to go on undercutting European democratic values with impunity.

Three possible bypass routes have been identified. Former Belgian Prime Minister Guy Verhofstadt, a leading liberal in the European Parliament, has suggested launching the recovery fund as a so-called enhanced cooperation among a group of willing states under the EU’s Lisbon Treaty.

Dutch Prime Minister Mark Rutte has mused aloud about the possible “nuclear options” of “re-establishing the EU without Hungary and Poland” or implementing the entire recovery package outside the existing treaties via an agreement among the 25 other governments.

Seasoned European lawyers say each of these paths is fraught with legal difficulty. The treaty stipulates that any enhanced cooperation “shall not undermine the internal market or economic, social and territorial cohesion” and “shall respect the competences, rights and obligations of those Member States which do not participate in it.”

Above all, the unanimity of the 27 would still be required to use EU budget receipts (known in Euro-speak as “own resources”) to underwrite joint borrowing for the recovery fund, which is the crux of the landmark deal signed off in July.

It is possible to create a standalone special purpose vehicle with paid-in national guarantees to borrow the money, as eurozone countries did when they created the European Stability Mechanism, the eurozone’s bailout fund for members that lose access to financial markets. But that would add extra liabilities to member countries’ national balance sheets, defeating the purpose of leveraging the community budget.

Nevertheless, to hedge against Polish-Hungarian obduracy, the other 25 should at least start the legal drafting work to establish the recovery fund outside the EU framework as a last resort.

There is a precedent. In 2011, when the survival of Europe’s single currency hung in the balance, U.K. Prime Minister David Cameron vetoed an EU-wide deal to tackle the eurozone crisis by tightening fiscal discipline.

Outraged at his strong-arm tactics, EU partners bypassed Britain and adopted the fiscal compact as an intergovernmental treaty a few weeks later. Only the Czech Republic sided with the U.K. The others signed up to the agreement, with the European Commission as enforcer.

Such bypass threats are more often tactics to apply political pressure on recalcitrant partners than statements of genuine intent.

It’s ironic that it was Rutte who invoked the idea of going outside the treaty. Just six months ago, French officials were hinting that Paris and Berlin might have to create a €500 billion recovery fund via a coalition of the willing — if frugal northern EU states like the Netherlands did not drop their opposition to joint borrowing and to handing out the money in grants rather than loans. The “frugals” eventually acquiesced in return for assurances on how spending would be supervised, including via a rule-of-law mechanism. 

It’s hard to imagine Germany, holder of the rotating EU presidency, being willing to shove Poland aside, given Berlin’s historical responsibility toward its eastern neighbor and the depth of their economic integration. Chancellor Angela Merkel made it her top priority to hold the EU together after Britain voted in 2016 to leave. She will be loath to split it on her watch.

Several other EU states would have misgivings about bypassing a member country’s veto for their own reasons, however frustrated they may be with Orbán’s and Kaczyński’s blackmail.

Cyprus, for example, recently used its veto to hold up EU sanctions against Belarus officials responsible for election-rigging and repression, in an effort to force tougher measures against Turkey over illegal drilling for gas. Austria delayed the launch of an EU maritime mission in the central Mediterranean to enforce an arms embargo on Libya out of opposition to migrant rescues at sea. Both ultimately dropped their objections.

There is no harm in offering Warsaw and Budapest extra guarantees, if that helps them save face and lift their blockade. Reassurances could include the fact that the rule-of-law mechanism will itself be subject to depoliticized judicial oversight within the EU and that the principle of proportionality will be respected.

But if Poland and Hungary are hell-bent on preventing any linkage between EU subsidies and democratic standards of judicial independence, as their escalating rhetoric suggests, then other EU countries must be ready to face them down.

Hungary and Poland need the money. As their ideological soulmate U.S. President Donald Trump sulks off into the sunset, they have no alternative friends to the EU. Furthermore, recent opinion polls suggest a clear majority of voters in both countries agree with the principle that EU cash should be conditional on respecting the rule of law and strongly support EU membership.

Orbán and Kaczyński must be told clearly, as David Cameron was during the eurozone crisis: If you try to hold the EU to ransom in the middle of an economic emergency, you will be bypassed.

POLITICO

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