The EU overcomes the Hungarian veto and approves 18,000 million for Ukraine and a minimum rate for Corporation Tax

Giant four-way deal on the brink of midnight. This Monday, Coreper , the ambassadors of the 27 EU, have reached an understanding against all odds to unblock four fundamental issues that had been stuck for months, largely due to Hungary’s veto. With the agreement reached, the EU gives the green light to a package of macro-financial aid to Ukraine worth 18,000 million euros and also agrees on a minimum rate of 15% for Corporate Tax with which to tax the multinationals.

At the same time, the Council will give its approval to the National Recovery Plan of Hungary, which will allow the Government of Viktor Orban to opt for 5,800 million euros in transfers or, at least, not to lose them permanently. And all the parties have also found the meeting point to freeze, for the first time in history, 6,300 million in Cohesion Funds awarded to Budapest, which will be left without them at least temporarily due to its repeated violations of community standards.

The agreement was reached after the Ecofin was unable to resolve the issue last week, hours after a meeting today of the 27 foreign ministers in Brussels and just two days before the holding of a European Council with the Heads of State and Government. There were elements that could have been imposed from the beginning by a qualified majority, but the idea was that they were all aligned, at least to the extent possible. Hungary was not going to vote against itself, but it has not had enough support to prevent it either.

“Mega-agreement” The EU ambassadors agree in principle on a package of 18,000 million in support of Ukraine, a 15% minimum tax for large corporations, approval of the Recovery Plan for Hungary and an agreement about conditionality. The package will be confirmed by written procedure” on Wednesday, confirmed the Czech Presidency, which this semester is in charge of the Council and the negotiations. The Netherlands has abstained and the question remains as to whether Poland will not put up problems with the type m Courage, since he has his own troubles with Brussels and has practiced similar tactics.

“Coreper has found the qualified majority necessary to impose measures for the protection of the Union budget against the consequences of breaches of the principles of the rule of law in Hungary, in connection with the public contracting, the effectiveness of the procedural action and the fight against corruption. The budgetary impact of this suspension amounts to approximately 6,300 million” , says the consensual text.

The pact stipulates that funds are frozen, but less than those proposed in September by the Commission. Ursula von der Leyen’s team and the Budget Commissioner, Johannes Hahn,they suggested freezing up to 65% of three programs. The rules say that it is not enough for a country to commit irregularities. In order for there to be a financial sanction of this type, they must be violations that, in addition, commit public resources of the Union. That is why it focused on three programs and that amount. The ambassadors, however, have reduced the total to 55% of these three programs, considering that since the cut-off date Budapest has made progress, improvements, and that the legislative reforms correct some deficiencies. Despite the fact that on Friday afternoon the Commission reiterated the evaluation and said that the proposed amount, 7,500 million, was fair and proportional. The new total remains somewhat above 6,000 million euros, almost the same as the country will receive in Next Generation Fundsif it complies with the reforms, investments and the 27 super-milestones that it has committed to in writing. And that they are an essential procedure for any disbursement, as in other countries.

“Since the corrective measures taken so far by Hungary are affected by significant deficiencies that seriously compromise their suitability to deal with the infringements of the principles of the rule of law identified by the Commission in its proposal, the Council considers that the consequent risk to the Union budget remains high.However, in light of the number and importance of corrective measures that Hungary has successfully implemented and given the degree of cooperation, it will be to a reasonable approximation” to set the remaining risk to the budget at 55% of the commitments of the programs”, say the 27.

For months Hungary has had the upper hand, more or less. The European Commission had stopped its Recovery Plan, the only one in the entire EU that had not been approved. The main reason is that it is European money and the regulation requires that there be guarantees that it will be well used and that the beneficiary country has the legal and institutional mechanisms to guarantee it. And Hungary, with the executive branch dominating in part the judiciary, and without independent auditing and verification bodies, did not meet the requirements. Since the summer of 2021 there has been tension, discussions, but no progress. Brussels expected changes and reforms in Hungary, which also had to comply with several sentences of the Court of Justice of the Union, but they did not arrive. So everything was at an impasse.

Conditionality mechanism

The problem is that two things were happening simultaneously. On the one hand, the EU was launching, for the first time, the Conditionality Mechanism, a new instrument that the CJEU endorsed this year and that allows the freezing of the Cohesion Funds of a country that violates the rules and jeopardizes the rule of law and the Community budget. On the other, that Budapest responded with blockades, vetoes and stones in the wheels of the community gear.

Specifically, Hungary has stopped two initiatives in recent months that had nothing to do with its problem: those 18,000 million euros that Ukraine desperately needs and the minimum rate of 15% for multinationals in an initiative international within the framework of the OECD. It was blackmail, extortion, from the book. Hungary was pressing where it hurt the most, and the Ukrainian question is now, along with energy, the main priority of the Union.

Budapest has not blinked, especially because it is the government closest to Moscow and because, in addition, it has historically had problems with Ukraine over the rights of the country’s Magyar minority, which it considers they are not respected. The fiscal question was an addition. Until now. Seeing that the consensus path was closed, the EU had decided these days a Plan B, which consisted of helping Kiev in the same way that Greece was rescuedthe first time, with loans or bilateral assistance from all members. The tax issue did not go away, but it was less of a priority. All this together with the fact that the deadline established in the regulations expires on the 19th, and that if Hungary had not approved its Recovery Plan by then, it risked losing up to 70% of those funds, it has been decisive. The frying pan was no longer by the handle and was beginning to burn.