The EU budget commissioner has warned Poland and Hungary that Brussels is ready to cut them out of the recovery fund and proceed with the project without them if they continue to block Europe’s upcoming budget. 

Johannes Hahn said that Warsaw and Budapest “cannot stop us from helping our citizens” as he confirmed that the commission’s lawyers had identified possible ways of circumventing the two capitals’ objections to the EU’s spending plans. 

His intervention, in a Financial Times interview, steps up the pressure on the two countries as they block the planned €750bn pandemic recovery fund as well as the EU’s seven-year budget. They both object to a new rule of law mechanism that they claim unfairly targets their nations — in a stand that has thrown the EU’s July spending deal into jeopardy. 

Mr Hahn said that Warsaw and Budapest would not succeed in blocking the recovery fund, and that if they continued to wield their vetoes it would “backfire” on their citizens by severely reducing flows of EU money to the two countries. 

Poland’s deputy prime minister, Jaroslaw Gowin, whose Agreement party belongs to the moderate wing of Poland’s ruling coalition, said on Thursday that he thought there was still scope for compromise.

“In the case of a veto, either from Poland or from Hungary, the so-called provisional budget will come into force,” he said after a meeting with officials in Brussels, according to Poland’s state news agency PAP. “Despite what some voices in the Polish public debate are saying, this would not be beneficial for Poland, or for each of the remaining 26 member states.”

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“It seems to me that . . . a compromise is possible, even if not in the form of reopening the discussion on the form of this regulation [on the rule of law mechanism], then in the form of binding interpretative declarations.”

Mr Gowin added that an “interpretative declaration” could be prepared by the legal service of the commission, but would have to be confirmed by the European Council. He said it would need to make clear the rule of law mechanism would not be used to “put unjustified pressure on specific countries in questions other than the honest use of EU funds”.

The stand-off over the budget is set to dominate a Brussels leaders’ summit scheduled for Thursday and Friday next week. Mr Hahn said the commission’s focus was on striking an agreement with Warsaw and Budapest, but he added: “We are fully aware of our responsibilities; that is why we have already started on alternatives.” 

He was confident that if the EU resorted to the fallback route of excluding two member states, the recovery fund could still proceed roughly along the originally envisaged timeline. It would be a matter for discussion whether the EU reduced the size of the recovery fund to account for the absence of Poland and Hungary, or stuck to the originally agreed €750bn and distributed the proceeds only to 25 of the 27 member states, he added.

A commission official on Wednesday stressed this creative option to sidestep the veto-wielding countries would be based on EU law and governed by the commission rather than happening via an inter-governmental treaty between other capitals. 

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“I think the message starts to arrive that both countries would lose significant money next year — and risk to lose even more” if they refused to compromise, Mr Hahn said on Thursday. Poland and Hungary both stand to be sizeable beneficiaries of the recovery fund if they participate, receiving grants amounting to 3 per cent of their gross domestic product, according to estimates from the European Central Bank. 

If they continue to block the EU’s upcoming seven-year multiannual financial framework, Brussels will be forced to move to a pared-back emergency budget for 2021 — the first time this has happened since 1988, further hitting the two countries’ EU receipts.

The emergency budget would result in the loss of billions of euros for policies such as climate change, migration and the Erasmus student exchange scheme. Brussels would not be able to pay out money for new cohesion project — with an impact on countries including Poland and Hungary. 

The emergency budget would result in the loss of billions of euros for policies such as climate change, migration and the Erasmus student exchange scheme. Brussels would not be able to pay out money for new cohesion projects — with an impact on countries including Poland and Hungary. 

Overall payments from the EU budget would fall between €25bn-€30bn next year without an agreement, according to commission estimates. 

“This heavily affects in particular those member states which are the biggest beneficiaries and recipients of cohesion money,” said Mr Hahn. He urged the two capitals to prioritise the interests of their citizens. “Otherwise it would be a lose-lose situation which is not in the interests of anybody.”

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Mr Hahn added that a technical agreement had now been reached on the annual 2021 budget, but this will only come into force if the full seven-year multiannual financial framework is settled. Absent this, the EU will have to resort to an austerity budget. 

Via Financial Times