Hungary vetoes EU aid for Ukraine, bloc delays decision on funds for Budapest

BRUSSELS - Hungary vetoed an 18 billion-euro (S$25.67 billion) loan to Ukraine from the European Union on Tuesday as its row with the bloc over undermining democracy rumbled on and EU finance ministers delayed a decision on whether to unfreeze billions of euros in aid earmarked for Budapest.

At an EU economics and finance ministers’ meeting in Brussels, Hungarian minister Mihaly Varga confirmed his government’s opposition to supporting Ukraine with the loan.

Hungary has said it would not take part in joint EU borrowing for Ukraine, though Budapest has said it would provide bilateral assistance.

But this is not how Hungary’s decision to block the EU loan has been received by all.

Mr Varga’s Lithuanian colleague told Reuters ahead of the talks that it was “immoral” for Hungary to hold up EU aid for Ukraine to extract approval from other member states for handing billions of euros from their joint budget over to Budapest.

On Tuesday, the chairman of the ministerial meeting said Hungary’s position would not stop other EU countries.

“We will not be discouraged. Our ambition remains that we’ll start the disbursement of our aid to Ukraine in January,” said the Czech Republic’s Finance Minister Zbynek Stanjura.

“This means we will be looking for a solution supported by 26 member states,” without Hungary, he added.

Locked in a tug-of-war with Hungary, the ministers decided to take off their agenda on Tuesday any decision about 7.5 billion euros in EU funds earmarked for Hungary, according to EU officials.

The ministers were supposed to vote on a recommendation last week by the bloc’s executive European Commission to freeze the money, worth 65 per cent of cohesion funds assigned to Hungary from the EU budget, until the end of 2027 over corruption risks.

“The rule of law conditionality mechanism discussion was taken off the agenda of the formal meeting,” said one of the sources. “No formal decision today.”

The ministers also delayed any decision on Budapest’s spending plan for another 5.8 billion euros envisaged for Hungary from the bloc’s economic stimulus, which had been set up to help economies recover from the Covid-19 pandemic.

Together, the funds add up to nearly 9 per cent of Hungary’s estimated 2022 GDP.

Pressure

Hungary is the only EU country that has not had its blueprint spending plan approved yet - a precondition to receiving the funds - with the Commission blocking access, citing damage to judicial independence in the ex-communist country.

Should that not be approved by the end of the year, EU laws say 70 per cent of the amount will be irrevocably lost.

That has allowed the EU to pile pressure on Prime Minister Viktor Orban to make amends as he tries to secure the money for his ailing economy.

Over his 12 years in power, Mr Orban has had regular, bitter fights with the EU over the rights of gays and migrants in Hungary, where he has also tightened state controls over NGOs, academics, the courts and media.

International watchdogs say he has channelled EU funds to his inner circle over the years, entrenching himself in power. Mr Orban denies Hungary is any more corrupt than other EU countries.

Caught up in the EU’s run-ins with Mr Orban on Tuesday was also an OECD agreement to tax large international corporations a minimum of 15 per cent where they operate.

The other 26 EU countries can work around Hungary’s veto on aiding Ukraine, albeit through a more cumbersome process of bilateral loans to Kyiv.

For taxes, however, Budapest is barring the necessary unanimous endorsement of all the 27 member countries needed for the EU as a whole to join the OECD plan.

With distrust running high between Brussels and Budapest, the Commission was not convinced enough by Mr Orban’s recent moves to set up a new anti-graft agency in Hungary, among others.

Germany was among those bidding for more time on Tuesday, according to EU officials, saying the bloc might still endorse the Commission’s proposal to cut 65 per cent of funds later in December.

Other EU countries could also lower the amount to be frozen if Budapest convinces them that it was making real progress, something a group of international democracy and rights groups including Transparency International warned against.

“The evidence of Hungary’s rule-of-law decline has been exposed for years,” they said in a joint letter this week.

“We also call on you to protect the (European) Union’s financial interests by ensuring that EU money is spent for the intended purpose... rather than serving elite interests and perpetuating rights violations.” REUTERS