Tomorrow, European Union leaders will have a video summit in the hope of breaking the deadlock over the bloc’s EUR1.8tn 2021–2027 budget. The budget is being vetoed by Hungary and Poland over a requirement for member states in acceptance of EU funds to meet standards for rule of law. EU leaders had originally clinched a deal on the budget back in July, after Finland, Sweden, and the Netherlands agreed to drop demands for the rule of law requirement. However, the European Parliament later insisted that the requirement be restored.
If no agreement is reached by the end of the year (however unlikely that may be), the EU will run out of money. Both Poland and Hungary have also blocked proposed taxes to be raised directly by the EU, a key source of financing for a EUR750bn pandemic recovery programme. However, the threat to the Recovery and Resilience Facility is less pressing as its payments are not due until the middle of next year.
The EU does have leverage over both Hungary and Poland, which are both heavily reliant on EU agricultural and cohesion funding as well as being set to receive generous sums from the joint recovery package. For both countries it will be about political face-saving if they were to reverse their decision.
So, given that Germany currently holds the rotating EU presidency, the responsibility to find a way out of the current crisis will fall on Ms Merkel. It is thought some judicious re-wording of the rule of law clause may allow a budget compromise to emerge and allow both sides to walk away claiming victory. We shall see.