In protecting the success and the integrity of the Friends of Cohesion group, who favour similar levels of spending under the EU budget, the Hungarian government may need to give up its opposition to any rule of law conditionality.

Double standards, witch hunt, revenge. These are the most common expressions used about the plans of the next Multiannual Financial Framework (MFF) in Budapest. Since the same words appear almost on a daily basis related to any criticism coming from the EU, only a few experts understand that this time the stakes are much higher.

Judit Varga

The Hungarian government promises to veto the next long-term budget of the EU. It would not be the first time. Recently, Budapest has blocked – with Warsaw – a conclusion on the evaluation of the annual rule of law dialogue among member states at a session of the EU’s General Affairs Council on 20 November. Justice Minister Judit Varga, also responsible for EU Affairs, suggested that the main concern of Hungary was the lack of the European Commission’s authority to link the results of this evaluation to the MFF negotiations.

Any compromise might be easier to achieve when parties also negotiate on budgetary issues, and possibly when the two questions will be linked as part of a package deal.

Net contributors insist that they will not pay more. As we try to slice a smaller cake into bigger pieces, it is guaranteed somebody will remain dissatisfied. As Szabolcs Takács, then State Secretary for EU Affairs said at a public debate in the summer of 2018: “We can compromise on less, but we have to find the balance, as the planned 24 per cent cut in Cohesion Funds is too much.” Apparently, a deal is not within sight, but still farther away.

What is at stake?

Hungary would receive 20 per cent fewer funds than during the previous MFF, if based on the income change from structural and cohesion funds, but 33 per cent less, if based on the changes of the net position (since Hungary will pay also more to the budget, it further decreases its net position). And that is the minimum, as the absorption capacity of Central European member states from innovation and defence funds is significantly lower than for example the absorption capacity of France or Germany.

In a recent statement Gergely Gulyás, Minster of the Prime Minister’s Office suggested that “If the UK is leaving the EU, the EU budget will shrink by 12-13 per cent, and this is the maximum cut we could accept. Actually, we would be willing to increase our financial contribution, but it seems there is no consensus on this.”

The argument about paying more has been present in the local discourse for a very long time, although everybody knows that a higher level GDP contribution means a better net position for beneficiary states like Hungary.

The solution must be somewhere between the 13 per cent cut offered by the Hungarian government and the 33 per cent cut presented in the planned MFF.

Bargaining

The government knows well that Hungary alone can veto the process but cannot win the war. Consultations within the Visegrad Group (V4) and in the larger, Friends of Cohesion Group started as early as July 2016, under the Polish Presidency of the V4.

Following the recent meeting of the Friends of Cohesion in Prague, it is clear that the group is stronger than before. This time 16 countries joined the group, while those opposing to pay more became weaker as the consequence of the Brexit process.

Following the meeting, PM Orbán highlighted that the rebates system is completely unfair. This was a clear message to Angela Merkel, who demanded Germany retain EU budget rebate in mid-October. Orbán also added that it should be taken into account that a large percentage of the funds received by Central European countries as grants ended up in the Western member states, in the Hungarian case in Austria and Germany.

From a Hungarian perspective, it is crucial to convince Germany and Austria. Both countries want the long-term EU budget to be capped at 1 per cent of the EU’s gross national income, while the European Commission has proposed 1.1 per cent. Convincing net contributors alone to spend more would already decrease the negative impact on Hungary.

At this point members of the Friends of Cohesion, including Hungary, are waiting for the Finnish Council Presidency to end and start afresh with the Croatian Presidency. Budapest had regular clashes with Helsinki, on rule of law issues, the Artice 7 procedure as well as the MFF, which had an impact on their bilateral relations.

The Finish proposal suggested a 1.07 per cent under the MFF, which was immediately ruled out by the Parliament and created a consensus among different political families.  The proposed budget was not sufficient to meet any of the strategic goals of the new Commission and deepened the divide in political positions of the main stakeholders.

The discussion on contribution level could be best solved by increasing the EU budget beyond the 1.1 per cent level of the EU’s gross national income, in line with the Friends of Cohesion group’s proposal. In parallel, the share of Cohesion Funds could be decreased in line with the position of net payers. That would help to guarantee sufficient funding for the most important programs of the European Parliament and the European Commission, regarding the climate change emergency, Erasmus exchanges or bolstering innovation.

The government knows well that for the success and the integrity of the Friends of Cohesion group they might have to give up their position opposing rule of law conditionality. “I do not think it is a totally irrational idea to introduce something like this,” Minister Gulyás told recently. “But we need guarantees that it is not going to be used to decide political debates.”

The solution is easy. Take away decision-making from the Commission and delegate it to the European Council. This could be acceptable for Orbán: from the Article 7 procedure against Hungary, he has learnt that when it is the heads of state and government who decide, the political risk remains acceptable (or smaller).

Executive Director of the Centre for Euro-Atlantic Integration and Democracy


Scenarios for cohesive growth

As of 2019 the negotiations about the next Multiannual Financial Framework (MFF) will enter a critical moment. In the face of an imminent Brexit and the fallout from global turmoil, the EU has to reflect on its guiding principles and take decisions to fulfil the promise of a united Europe.

Download the report in PDF

The Visegrad/Insight is the main platform of debate and analysis on Central Europe. This report has been developed in cooperation with the Centre for European Policy Studies (CEPS).

Launched on 1 October 2019 at the European #Futures Forum in Brussels.