Czechia, EU, Hungary, Poland, Slovakia
V/I survey: reaction to new EU budget

Law, not a political judgment must govern the EU budget

Konrad Szymański and Martin Ehl, Daniel Hegedüs, Tomasz Kasprowicz 
30 kwietnia 2018

According to the Financial Times, the Commission will put on a table a new proposal to move EU funds to Italy, Spain, Greece. How will Visegrad countries react?

We have asked Mr Konrad Szymański, Secretary of State for European Affairs of Poland along with a number of experts in the V4 to comment on the recent revelations by the FT.

The FT article concerns only one, though undoubtedly significant aspect of the possible MFF post-2020 proposal. It will be important to look at the Commission’s proposal as a whole package. Poland has a pragmatic stance that recognizes the need for EU budget reforms. Brexit will cause important financial constraints of an objective nature. To those promoting radical increases in the financing of the eurozone reforms or migration, we say that the level of this ambition is determined primarily by the ability to find new inflows to the budget. These negotiations will be nervous, but in the end, we will need to find a full and unanimous agreement between all Member States.

Polish GDP per capita in relation to the EU average grew from 50% in 2004 to 68% in 2016. With the steady economic progress, the role of the EU budget for our country will gradually decrease. Nevertheless, we will not accept discriminatory solutions and attempts to revolutionise the EU budget. The cohesion policy is positive for Europe as a whole and cannot become the victim of the political troubles from the southern EU and the internal contradictions of the eurozone. Members States from the CEE region make very good use of the current cohesion policy funds and will still need them after 2020 to close the existing development gaps, also in terms of basic infrastructure. Southern European countries, on the other hand, face a completely different set of problems and will rather need support for structural reforms necessary to make their economies more competitive.

We firmly believe that each euro from our taxpayers must be spent in a transparent, legal and reliable manner. Our assessment of any new proposal regarding the conditionality of EU funds will depend on its wording. We will not accept any discretionary mechanisms which would enable using EU funds as an instrument of political pressure. The EU budget must be governed by law, not a political judgment.

 

V/I also asked several analysts and foreign policy experts for a comment on what to expect from the V4 countries.

Tomasz Kasprowicz
Economist, vice-president Res Publica Foundation

The decrease in funding for the V4 has been anticipated for a long time, and it has multiple reasons. The economic convergence is well underway, and as this developmental gap between the V4 and the rest of the EU closes, the reason for large transfers is also diminishing.

Secondly, the V4’s lack of solidarity, demonstrated during the refugee crisis, makes the old EU guard less willing to show solidarity themselves. Therefore, moving the funds towards the South is a clear demonstration of the importance the EU is placing on solidarity as the rest of the union is aware of how painful this will be for the V4.

The current standing of V4 countries profoundly limits any response they may have to this proposal. Poland has virtually zero soft power since they are trying to climb out of the worst position any country in EU has been in, so far. Hungary has but one bargaining chip – allowing the triggering of sanctions against Poland. It is not out of the question despite Orban’s claims to the contrary; however, it may create unwanted precedence for him as Hungary is not in the best standing with the rule of law either. Succinctly, Czechia and Slovakia have little punching power of their own.

It seems then that the response – which will be critical – will have little impact on the final result, and there is very little the V4 governments can do. The road ahead is one of the hard negotiations and short of big wins. But every minor concession the V4 can get will count in coming years. Economically speaking, these are going to be much more difficult times than the ones we live in now.

Martin Ehl
Chief International Editor in the Czech economic daily Hospodarske noviny, economy section editor at Visegrad Insight

The response from the V4 should be a coordinated one, well worded and focused on a kind of counter-proposal.

But it is hard to expect anything like that. It is about money, and every member state will do it on its own – which means there is hardly any chance to achieve a positive result for the V4 concerning the proposal and the future flow of money. The new plan is devised not only on the rule of law. Other criteria like innovation or youth unemployment also challenge claims by the countries of the region.

In general, Visegrad countries are not in an advantageous political position to negotiate about next budget. They can do only damage control which in this case is to prepare for lower incomes from EU cohesion funds. Politicians in Central Europe have stated many times that they are not willing to compromise when it is their power at stake. Even famous diplomatic skills of Viktor Orban, in this case, is not enough. Unfortunately, there is no political will to make compromise strong enough to reverse the proposal even diplomats from all four V4 countries will be doing their best in Brussels.

Daniel Hegedüs
Visiting fellow in GMF’s RethinkCEE initiative and visiting lecturer at the Humboldt University Berlin

The leaked draft position of the European Commission on the reform of the EU Multi-annual Financial Framework could hardly cause much surprise in Budapest, or in any other Central European capital. Critical components of the draft, like the introduction of the rule of law conditionality, or the potential disfavouring of Poland and Hungary in a narrower, or the East-Central-European region in a broader sense, were all widely known and discussed well before Financial Times published the delicate details.

The introduction of several new criteria, like youth unemployment or exposure to migration will determine the redistribution mechanism of cohesion funds. The GDP per capita threshold used in the current and previous financial frameworks will not be so decisive. It is a smart move by the Commission that shifts the main conflict line from the payer-net and the beneficiary cleavage to a conflict among the net beneficiaries.

The government in Budapest has had plenty of time to prepare its position and negotiation strategy concerning the possible rule of law conditionality and budget cuts. But the three real questions will only be answered at the negotiation table.

First, how will the compliance with the rule of law ultimately be measured in the new framework? Will the Commission be able to decide about the cutting of funding, will it depend on CJEU rulings, from an Article 7 procedure, or from a (probably unanimous) decision in the Council? These details will fundamentally influence whether Budapest (and possibly Warsaw) can ultimately give its consent to the rule of law conditionality. At a certain point of the negotiations, the government of Prime Minister Orbán can easily drop its opposing position and seek to water down the Commission’s initiative. It can happen if likeminded countries can secure that the determination of the relevant rule of law breaches will be a competence of the Council, and not of the Commission.

Second, in a no-win situation offering the choice between the hard rule of law conditionality and a significant decrease in funding, what will be the ultimate trade-off preferred by Budapest? Both the domestic political demand and the regional allies, among them the other V4 countries, can push Prime Minister Orbán to embrace conditionality in exchange for a desirable amount of funding. However, that can run counter to domestic dynamics, like the increasing witch hunt against the civil society that could expose Hungary to immediate sanctions in the new regime of redistribution.

Third, the ultimate question is how much isolation is Budapest ready to risk as a veto player to reach its goals? A hard position even in the above mentioned second case can result in growing rifts among the Visegrad partners and increasing isolation for Hungary. It remains an intriguing question whether Budapest would be ready to veto the MFF deal if the introduction of a hard rule of law conditionality is unavoidable. Bearing the Hungarian foreign policy patterns between 2010 and 2016 in mind, Budapest will most likely not cross the red line. But if we take a look at the increasing amount of unilateral Hungarian vetos during the past two years, the option of a Hungarian veto should not be left unconsidered.