(Bloomberg) — Hungary and Poland headed toward a major clash with their European Union partners after doubling down on a veto to the bloc’s stimulus package, demanding changes that will likely face outright rejection.



a statue of a flag: European Union (EU) flags fly from flag poles outside the EU's Berlaymont building in Brussels, Belgium, on Wednesday, Sept. 16, 2020. The European Union’s executive proposed toughening the bloc's emissions targets in a move that'll force industry to face stricter pollution standards and aims to spur a green economic recovery.


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European Union (EU) flags fly from flag poles outside the EU’s Berlaymont building in Brussels, Belgium, on Wednesday, Sept. 16, 2020. The European Union’s executive proposed toughening the bloc’s emissions targets in a move that’ll force industry to face stricter pollution standards and aims to spur a green economic recovery.

In a defiant briefing in Budapest, Prime Minister Viktor Orban and his Polish counterpart, Mateusz Morawiecki, showed little sign they’d reverse objections to tying budget financing to rule-of-law standards. Brussels is investigating the two countries over democratic backsliding, making them prime candidates for cuts to funding that could top a combined 180 billion euros ($215 billion) in the coming years.

The battle is delaying 1.8 trillion euros of EU spending that includes the seven-year budget and a 750 billion-euro coronavirus-relief fund. The situation is becoming more urgent as a second wave of Covid-19 infections threatens to trigger a double-dip recession. The holdouts complain of infringement on their sovereignty, while net budget contributors like The Netherlands say the rule-of-law provision is the minimum needed to uphold the EU’s core values.

“The proposed conditionality circumvents the EU Treaty, applies vague definitions and ambiguous terms without clear criteria on which sanctions can be based and contains no meaningful procedural guarantees,” Orban and Moraweicki said Thursday in a joint statement. They said the plan needs “substantial modification” and reiterated their readiness to veto it in its current form.

Despite member states being desperate to access crisis-relief cash, there’s no indication they’ll agree to demands from the eastern European countries to drop the conditionality for now, allowing the budget and aid to pass.

‘Waiting Desperately’

A senior EU diplomat saw no support for reopening the conditionality mechanism in the European Parliament or in the European Council, saying Hungary and Poland are moving deeper into isolation. EU government envoys in Brussels will debate the deadlock over a non-public meeting on Friday, where the impasse in Brexit talks will also be discussed.

Under the rule-of-law mechanism, a qualified majority of EU members can approve sanctions, based on the recommendation of the EU’s executive commission, to protect the bloc’s financial interests. Those subject to penalties can appeal via the European Court of Justice.

Video: EU budget issue not about rule of law, but politics instead: Polish minister (CNBC)

EU budget issue not about rule of law, but politics instead: Polish minister

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“That’s the place where we usually thrash out differences of opinion regarding legal texts,” European Commission President Ursula von der Leyen told the European Parliament Wednesday. “And not at the expense of millions of Europeans waiting desperately for our help.”

Hungary and Poland have other concerns, however, having extended political influence over the courts and the media in recent yeas, challenging EU standards while receiving more than they pay into the budget.

Linking funding to adherence to EU values is seen as an existential threat in Budapest and Warsaw. Orban said he told German Chancellor Angela Merkel this month that signing up to conditionality was tantamount to “suicide,” the Die Zeit newspaper cited him as saying.

‘Fair Rules’

Orban on Thursday took issue with allowing a qualified majority of member states to approve financial sanctions. Hungary and Poland said the bloc could return later to the debate on enforcing democratic standards, though that would require amending its treaty, which can only be done with the agreement of all members.

With the chances of a compromise looking slim, the EU could escalate the fight by adopting rule-of-law conditions for the EU budget by a qualified majority and striking inter-governmental agreements for the 750 billion-euro coronavirus fund.

That would get around the Hungarian and Polish vetoes but leave the new 1.07 trillion-euro EU budget stuck. In that scenario, the bloc would operate under an emergency monthly budget, with the rule-of-law conditions still applying.

That prospect appeared equally unacceptable for Poland’s leader.

“We don’t need two contrary interpretations just like we don’t need a two-speed EU,” Morawiecki said. “We need an EU that’s developing on the basis of treaties and fair rules.”

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