EU postpones stand-off over funding blockade

European Union member states postponed a bust-up over a blockage on next year's budget and recovery funds intended to stimulate economic growth following the coronavirus pandemic, as they met over video conference on Thursday.

A last-minute veto of the €1.8 trillion 2021-2027 budget and landmark stimulus plan by Poland and Hungary caused dismay across the continent and sparked concerns that a delay in funding could worsen the downturn, infuriating some capitals that are counting on quick cash to keep their economies afloat.

With tempers running high over the issue, the president of the European Council, Charles Michel, held phone calls with member states before the conference began on Thursday night to head off any conflict and make sure the discussion would remain “under control”, an EU official said.

“Do not underestimate the seriousness of the situation,” the official said. “We need to implement the agreement of July asap.”

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Sensitive issues

Several EU governments say that resolution of sensitive issues is impossible over video calls because they do not allow for confidentiality, as other officials could be listening out of sight of the camera.

Work is therefore under way behind the scenes to craft a deal in the coming weeks, as the leaders prepare to meet in person in Brussels on December 10th and 11th, when their mobile phones will likely be confiscated to allow for hard bargaining in closed-door talks.

Budapest and Warsaw used their veto in retaliation for a new rule that would tie EU money to respect for the rule of law, something the two right-wing nationalist governments fear is aimed at them as they are subject to formal EU proceedings on suspicion of interfering with the independence of courts, the media and civil society.

Their last-minute blocking of the deal was a severe blow to the European Commission, which touted the July deal on the recovery plan as a landmark moment for the EU that showed member states could pull together in time of crisis. Based on joint borrowing by the commission that is distributed out to member states in the form of grants and cheap loans, the package was seen as a potential watershed for the EU and was welcomed by financial markets.

Covid-19 surge

Discussion of the issue on Thursday was kept to just 15 minutes before talks moved to the course of the Covid-19 pandemic, which has seen a severe surge across European countries, many of which are experiencing greater infection numbers than in the initial wave in spring.

A handful of national leaders contributed: Hungary's hardline prime minister Viktor Orban and Poland's Mateusz Morawiecki expressed their objections to the deal, while Slovenia's right-wing populist leader Janez Janša also expressed reservations. The German chancellor, Angela Merkel, stressed the need to pull together to break the deadlock.

Both Poland and Hungary themselves stand to lose significant sums by blocking the budget and recovery plan, leading some to question how long they can maintain their opposition.

The current package is the result of painstaking negotiations, including with the European Parliament, where MEPs have warned that they will not tolerate substantive changes to the deal.