Hungary and Poland claim victory over rule of law as EU agrees Covid-19 recovery package

A one word tweet from Charles Michel, the European Council president, at 05.31 on the morning of July 21 told the world that EU leaders had finally struck a deal on a landmark coronavirus recovery package: Deal!, wrote Mr Michel.

After days of often bitter debate, the EU’s heads of government agreed on the package worth 750 billion euros, known as Next Generation EU, first put forward by the European Commission in May and which will be made available to fund post-Covid-19 relief efforts across the EU. The Commission will itself borrow the money – cheaply, using its triple-A rating. As a bonus, leaders also signed off on the EU’s next seven-year multi-annual budget, which will be worth and additional 1.074 trillion euros.

Member states were largely split between those hit hardest by the outbreak and keen to revive their economies, and those more concerned about the costs of the recovery plan.

The self-proclaimed frugal four – Sweden, Denmark, Austria and the Netherlands – along with Finland, had opposed allowing 500 billion euros from the recovery fund to be offered in the form of grants to countries hardest-hit by Covid-19. The group, led by Dutch Prime Minister Mark Rutte, originally set 375 billion euros as a limit, proposing that the rest be disbursed as loans.

Other members, such as Spain and Italy, did not want to go below 400 billion euros. In the end, a compromise of 390 billion euros was reached, a significantly smaller sum than the 500 billion euros originally proposed.

German Chancellor Anglea Merkel hailed the agreement as setting “the financial foundations for the EU for the next seven years”. The chancellor added: “Europe has shown that it is able to break new ground in a very special situations such as this one.”

Another issue in the negotiations was how disbursements would be linked to governments respecting the rule of law. Hungary and Poland both threatened to veto the entire package if it adopted a policy of withholding funds from nations who do not meet certain democratic principles. They appear to have got their way, at least for now: the compromise agreed by the leaders puts off designing a rule of law mechanism for another day, although it will, crucially, be agreed via a qualified majority of member states, which means that Hungary and Poland will not be able to use their veto.

“We want to uphold the rule of law. At the same time, we want proper budgetary and fiscal discipline to be maintained with appropriate supervision. We were able to keep these two issues separate,” said Polish Prime Minister Mateusz Morawiecki.

“We fought it out, and we won,” added Hungary’s PM, Viktor Orbán. “Hungary and Poland didn’t simply secure substantial funds, we have also protected our national pride. We have successfully refused all attempts that would have tied access to EU funds to ‘rule of law’ criteria.”

Poland will also be delighted at having watered down a demand to link green transition funds to signing up to the EU’s 2050 climate targets.

Poland, which stands to be one of the largest recipients of grants from the recovery fund, plus potentially billions more from a “just transition fund” to move away from coal, is the only EU member state not to have signed up to the 2050 zero-carbon pledge.

Romania’s president, Klaus Iohannis, was also pleased with the deal.

“We have obtained an impressive amount for our country – 80 billion euros, which we will use to restore the infrastructure in Romania, to build hospitals, schools, to modernise the public systems. Also, a significant part of this money will be used for economic recovery,” he said.

Under pressure Bulgarian PM Boyko Borissov also claimed victory.

“Bulgaria is to receive almost 29 billion euros of European funding over the next seven years,” he said. “Bulgaria is getting one billion euros more for the new budget period. We are one of the few countries which will receive more money from the new budget.”

Not everyone was happy, however.

To reach a deal, leaders signed up to cuts in top-up funding for EU programmes compared with earlier proposals, including its flagship Horizon science programme, a decision that Ursula von der Leyen, the European Commission president, described as “regrettable”.

Others have warned that the deal is not the end of the story.

“This is in no way a ‘final deal’ for the EU budget,” said Terry Reintke, a German MEP for the Green party. “Now the negotiations with the European Parliament start. Some people really seem to be forgetting that.”

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