Who won the EU budget stand-off?

Budapest, Hungary – While everyone declared victory after the EU summit, the only thing Viktor Orbán won is time.

In the latest episode of the European Union’s hit series, Deal or No Deal, all eyes were set on the East. A somewhat predictable game of chicken unfolded after a proposal to bind EU funds to the rule of law in member states. As Poland and Hungary were opposed to this, however, they had no way to actually vote down the mechanism (unlike the budget, it did not need to be accepted unanimously, only by a qualified majority), they threatened to veto the EU’s next budget and the unprecedented Covid Recovery Plan.

After the current German presidency of the European Council gave an ultimatum to the resident bad boys, Viktor Orbán unsurprisingly flew to Warsaw on Tuesday afternoon to agree a deal with his Polish counterpart Mateusz Morawiecki, PiS president and Poland’s de-facto leader Jarosław Kaczyński as well as moderate and radical members of the Polish ruling coalition.

The compromise, initially proposed by the German council presidency, is the following:

1. The clause that allows a member state under investigation to explain itself to the council will be strengthened.
2. It will be reinforced that the mechanism will only interpret the rule of law in a context that is directly related to EU funds and does not deal with the member states’ attitude to migration or LGBT rights.
3. The mechanism will not go live immediately, only once the European Court of Justice ruled that it is lawful.

Both the Hungarian and the Polish governments are communicating that the deal is a win for them. Orbán repeatedly claimed that “common sense” prevailed, he “protected the money of the Hungarian people”, and that he defended Hungary from blackmail. Morawiecki also stated that Poland achieved its goal to ensure that the Polish people decide “what their country looks like.”

The verdict is not entirely clear-cut, however. The mayors of Warsaw and Budapest, Rafal Trzaskowski and Gergely Karácsony stated that their governments laid down their arms in Brussels despite claiming victory. Hungarian Renew Europe MEP Anna Donáth also argued that Viktor Orbán backed down by accepting the final deal. A radical member of the Polish ruling coalition Zbigniew Ziobro claimed that Morawiecki made a mistake by accepting the compromise.

Even the Hungarian media seems divided. It is no surprise that pro-Fidesz papers uncritically present the government’s narrative, however there were differences even amongst opposition-leaning media outlets. 444.hu seems to view the deal as a win for the illiberals, but azonnali.hu interprets it as merely a time-saving measure for Viktor Orbán.

So who is right? The first point of the compromise is more or less negligible, however it is the other two that divide public opinion as to how great of a concession they are.

The Polish government is regularly criticised for the treatment of the LGBT community and their control of the courts. Likewise, Fidesz is often condemned for shrinking the independent media scene in Hungary. While Morawiecki and Orbán will surely be happy that they will not have to worry about losing EU funds due to their treatment of the LGBT community, the courts, or the media, the explanatory declaration itself does not change anything practical regarding the use of the new mechanism.

This particular regulation was always directed at the protection of EU funds (or as it appears in the regulation, “the financial interests of the Union”), therefore, even without the declaration, it would not have had the power to challenge LGBT discrimination in Poland or Fidesz’ media takeover in Hungary. The declaration means, however, that both Orbán and Morawiecki are able to sell the deal as a win back home, saying they protected their respective countries from migration or “LGBT ideology.”

The third point of the compromise, regarding a ruling by the European Court of Justice, was almost certainly requested by Viktor Orbán. According to the council’s official conclusions, “should an action for annulment be introduced with regard to the Regulation, the guidelines will be finalised after the judgment of the Court of Justice. (…) Until such guidelines are finalised, the Commission will not propose measures under the Regulation.”

Poland and Hungary will most probably attack the new regulation at the European Council. The courts are unlikely to reject the mechanism, however the ECJ is notorious for its slow decision making. Reaching a verdict on the matter could potentially take more than a year. Even if it is fast-tracked, a decision will only be made in the second half of 2021, meaning member states who engage in financial misconduct will only start facing the consequences in 2022.

The reason why Orbán was likely to have pushed for this de-facto delay in the implementation of the new mechanism is that Hungary’s next general elections will be held in 2022. The current prime minister will face his greatest battle at the polls yet with the economic damage caused by the Covid-19 pandemic and a cooperating opposition.

According to media reports, he thinks the results will be “close to a draw”, therefore Orbán is likely to be relieved that he will probably not have to worry about the financial consequences of the EU’s new anti-corruption tool for now. This, indeed, is a minor win for him, at least certainly in the short run and on a domestic level.

However, this does not change the fact that the regulation will be implemented in the near future, which will cause headaches for the current Hungarian political establishment that rewards loyalty to Orbán with favourable treatment during tenders and EU funded projects. In Hungary, between 2015 and 2019, OLAF made recommendations regarding financial irregularities in 3.93% of EU payments, by far the highest number in any member state. This regulation was never going to affect Poland significantly, as the percentage of OLAF recommendations is much lower there at 0.12%.

But if Orbán wants to avoid the mechanism being used against him, his room for manoeuvre regarding EU funds will decrease significantly. In case he wins in 2022, the new regulation will be just as (if not more given that in all likelihood, his majority will decrease significantly) damaging for his 2026 reelection prospects as it would have been in 2022 (it is evident he deems the new mechanism politically dangerous because he fought hard to delay it).

Besides, it is also questionable just how much time Orbán won. The new mechanism, despite only becoming operational once passing the ECJ, will cover the entire span of the new EU budget starting on January 1, 2021, therefore it is possible, even if unlikely, that the EU will start a process against Hungary for financial irregularities before the 2022 elections.

There are signs that Fidesz is already preparing to satisfy the new state of play. It was announced early this month that Gergely Gulyás, a moderate within Fidesz, but one of Viktor Orbán’s closest allies, will oversee the use of EU funds. Under Gulyás, the funds will be monitored by a member of government who has not found himself in corruption scandals (albeit, they will also be closer to Orbán himself than before).

The new mechanism was intended to fight corruption and protect EU funds. It is likely to achieve that. If the new regulation is used properly, taxpayers throughout the EU will not have to worry about their money landing in corrupt pockets. The mechanism will not bring about changes for the LGBT community in Poland nor balance the media landscape in Hungary, but it was never going to do so.

Those who expected the new regulation to put an end to illiberalism in Central Europe perhaps overestimated what the European Union can do. Due to its current structure, power in the bloc lies with the heads of national governments. And two of those, Poland and Hungary, are illiberal. The EU cannot put an end to illiberalism because currently, illiberalism is at the heart of its institution with two of its 27 most influential decision-makers. If the EU is to rid itself of illiberalism, that will not be up to its leadership but to the people of Poland and Hungary.

Champagnes will not be popping in the Fidesz headquarters, however. In setting out to protect EU funds from corruption, the regulation in its proposed form served to address a problem that Viktor Orbán is responsible for. The Hungarian Prime Minister did not manage to alter the substance of the regulation itself, which means that unless Fidesz change their approach to EU funds, they will have to face the consequences in the foreseeable future.

On a historical timescale, it is irrelevant whether that future is in two years or three. Orbán did not come out as a winner in this “compromise”, because, in the long run, it is no compromise at all. He is a turkey that voted for Christmas but had the feast postponed to next year.

Hardly a resounding triumph.

By Ábel Bede

Ábel Bede was born in Budapest and has two degrees in History from Durham University. He specialised in Central Europan history and has been contributing to Kafkadesk since 2019. Feel free to check out more of his articles right here!