Poland and Hungary’s threats to veto Brussels’ budget throw the European Project back into crisis

Where do we go from here? Hungary and Poland have followed up on their threat to defund the European Union.

They say that unless Brussels drops its plan to make payments out of the EU budget contingent upon compliance with its definitions of democracy and the rule of law, they will veto not only the bloc’s seven-year budget, due to take effect on January 1, but also the hard-won €750 billion Covid rescue and recovery fund.

The resulting crisis looks to be all-too real. It is one thing for Viktor Orbán and Mateusz Morawiecki to warn that they will not reverse controversial legislation affecting the appointment of judges and limiting freedom of speech in their countries. Europe is well used to bluster out of Budapest and Warsaw. It is something else when they put at risk the financial mechanisms that hold the Union together and which, at a pivotal moment, are set to provide cash vital to rebuilding its shattered economy.

It is not the first time that a veto has hung over the budget’s head. David Cameron talked of a veto if he didn’t get his way on a reduction in spending back in the heady days when he led Britain’s coalition Government. But he didn’t mean it. It was just a way of drawing attention to the deficiencies of an over-ambitious programme – and it worked. The European Parliament has on several occasions taken the safety off its two nuclear options – the other being to sack the entire Commission – by withholding its consent to the budget approved by heads of government without increases in favoured areas of expenditure. Again, some small upwards revisions were agreed.

But such interventions are grist to the communautaire mill. They add drama and colour to what is usually a dry and wearisome business.

The difference this time is that Hungary and Warsaw appear to mean it. It is already mid-November, just six weeks away from a day already marked in the calendar as the end of Britain’s transition from membership of the Single Market. To add a second cliff edge, on which all 27 remaining member states could find themselves teetering, goes beyond any institutional risks previously experienced.

Two questions arise. What happens if the veto remains beyond December 31? And what action might be taken against Hungary and Poland if they refuse to relent?

There are always ways around the inevitable. Brussels has never underestimated the value of bluff and sleight of hand. There will be references to “emergency provisions” in the treaties that allow for such eventualities. The existing 2014-2020 budget could be extended forwards, presumably without any contribution from the UK. What was arcane yesterday could be refashioned so that, from a certain perspective, it looks almost normal. At the same time, the Council, Commission and Parliament could come down hard and heavy on the delinquent states. There will be talk of cutting off all support, even, perhaps, of the withdrawal of freedom of movement for Hungarian and Polish workers.

In the longer run, such threats carry great potency. But over a shorter period – say three-to-six months – the dissidents could hold out, like hunger-strikers. They might even take pride in their Proud Boys defiance, or look to Vladimir Putin’s Russia as their new best friend (although this seems unlikely in Poland). Who knows? The bluster meter is already blowing out steam. How much hotter can it get?

In the immediate future – i.e. in the run-up to Christmas – the primary focus will be on protecting the roll-out of the rescue and recovery plan, which was agreed in the summer only after protracted negotiations marked by threats of veto from the so-called Frugal Four: the Netherlands, Austria, Sweden and Denmark. All of the member states, not excluding Germany, are expected to have their hand out come January.

Covid has not gone away. If anything, it has got worse since the summer. An economic recession lasting several years, and quite possibly a lot longer, is unfolding across Europe, and the only light at the end of the tunnel is provided by the three-quarters of a trillion euros stacked up by the markets like a pot of gold glistening in the gloom.

Orbán and Morawiecki know this. Indeed, their hands will be stretched out at least as far as anybody else’s. But they also know that they may never have a more valuable bargaining chip.

From the perspective of the other 25 member states, there are only three possibilities: they can withdraw, or “revise” their threat to withhold payments to Hungary and Poland; they can step up the pressure by raising the spectre of suspension of the two from the entire European Union (a rabbit hole down which they will not wish to go); or they can stick as they are and see what happens. My bet would be on the last one. An EU zoom summit takes place on Thursday, giving the Hungarian and Polish leaders a chance to strut their stuff while the others try to work out how far they are prepared to go.

The risk is that the cracks will not be papered over, requiring the 25 to take the decision either to concede or to kick the can further down the road, to the summit planned for 10-11 December. Again, that is where my money would be placed.

Orbán and Morawieki like to talk tough. The problem is that they like to act tough as well, meaning that they are hard to read. They like the idea of a compliant judiciary and media. Their idea of a functioning parliament is more like that of the Russian Duma than the Bundestag or the Assemblée Nationale. They may just imagine that, if they stand firm, with the Covid Cash as their ace in the hole, they might even pluck victory from the jaws of compromise.

It’s quite a gamble. In the end, if a way out cannot be found, it might not be the departure of the UK that is seen as the beginning of a re-shaped European Union, but the expulsion of Hungary and Poland, followed quite possibly by Slovakia and the Czech Republic.

Am I being just a little hysterical? Probably. Existential is as existential does. But after Brexit, which, it will be remembered, was seen as a shoo-in for Remain, the truth is that anything is possible. In the days ahead, Europe’s leaders may just need to find nerves of steel.