EU on brink as recovery fund faces delay unless Brussels adopts rare ‘eurozone procedure’

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Hungary and Poland blocked the progress of the EU’s €1.8trillon (£1.6tn) budget and recovery package at a crucial meeting of diplomats this week, stalling the centrepiece of the bloc’s economic response to the pandemic. At a meeting of ambassadors, the two countries’ envoys vetoed key elements of the package. Hungarian government spokesman Zoltan Kovacs said his country made the decision because it could not agree to new rules linking spending to rule of law norms.

The move will further delay the EU’s long-budget deal, which was agreed in principle at a leaders’ summit in July.

Brussels wants national governments to be allowed access to the money only if they commit to upholding the rule of law.

However, Hungary and Poland could fall foul of such a provision.

The governments of Victor Orban and Andrzej Duda are widely believed to have eroded the independence of the courts and the media.

The matter is now likely to be escalated to the level of European leaders who are discussing COVID-19 coordination matters at a video conference today.

As tensions are set to rise, Wolfgang Munchau, the head of London-based think-tank Euro Intelligence, argued there could be an easy solution to Hungary and Poland’s “blackmail”: enhanced cooperation.

In the EU, enhanced cooperation is a procedure where a minimum of nine member states are allowed to establish advanced integration or cooperation in an area within the bloc’s structures but without the other members being involved.

As of today, this procedure is being used in the fields of divorce law, patents, property regimes of international couples, and European Public Prosecutor and is approved for the field of a financial transaction tax.

Mr Munchau wrote: “The recovery fund would upgrade this instrument enormously, and it would set an important precedent: that the eurozone goes ahead without being stopped by authoritarian blackmailers.

“The recovery fund would meet the technical conditions for enhanced cooperation: a minimum of nine countries and no changes to the rules of the single market.

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“It would be open to anyone who wanted to join. If the EU went down that road, the Polish and Hungarian veto would become much less credible.”

Enhanced cooperation, Mr Munchau noted, is a compromise between a coalition of the willing and the route chosen by the European Commission, which was to fold the recovery fund into the EU budget.

He concluded: “If the EU sticks with the current plan, the recovery fund will face severe delays.

“An enhanced cooperation procedure could be the best of both worlds.

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“It is the only form of legal embedding for which we could see the recovery fund turning into a formal precedent.

“As a facility of the ordinary EU budget it is, and will remain, a one-off money shower. There is no appetite in EU member states for a generalised increase in the size of the EU budget.

“But a eurozone stabilisation facility would be a different matter.”

Hinting at the procedure, an adviser to President Emmanuel Macron said on Wednesday: “If this doesn’t work, and we’re not there yet, the possibility of resorting to a deal without all 27 countries is one of the options on the table.”

In an exclusive interview with, Ukip founder Alan Sked suggested it is crucial that the plan succeeds, particularly for German Chancellor Angela Merkel, as it will pave the way to further initiatives such as a fiscal union.

The emeritus Professor of International History at the London School of Economics (LSE) said: “Emmanuel Macron has been a great advocate for a federal Europe.

“He has made great speeches, calling for Europe to be united and having a fiscal union, a monetary union, which includes a bank, one treasury, one finance minister and some sort of financial parliament.

“Merkel and the Germans don’t actually believe in that but Merkel is about to retire and the rumour is that she wants to have some kind of historical legacy because so far there is not very much she can claim as hers.”

Prof Sked added: “There is this persistent rumour that she would like to go down with some positive legacy and that she will do something about the fiscal union.

“I am not sure the Bundestag will accept it, though.”

Mrs Merkel will not run for her fifth term as Chancellor and is therefore expected to step down in 2021.

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