Why EU Coronavirus Stimulation is at Risk


Hungarian Prime Minister Viktor Orban has left for a two-day European Union (EU) summit at the European Council building in Brussels.

Johanna Geron | AFP | Getty Images

LONDON – The EU’s historic historic plan to boost its economy has received a “major shock” after Hungary and Poland vetoed the deal.

This is threatening to derail the much-needed distribution of funds at a time when it is facing a profound crisis in modern history.

The 27 leaders of the European Union agreed in July to jointly raise funds through the European Commission. It was an unprecedented step and ended the long-running protests of more fish-rich countries such as Germany and the Netherlands to commit to a joint orrow.

In negotiations with the European Parliament earlier this month, the deal was scrapped to link the distribution of funds to commitments to the EU’s core values ​​- known as the rule of law.

Nevertheless, Hungary and Poland – which are under investigation for potential disrespect to these European values ​​undermining the judiciary and undermining press freedom – oppose this new link and decide to veto the agreement at a meeting on Monday.

Analysts at consultancy firm Eurasia Group said the overall plan was a major setback.

“Even in the case of the December deal, there will be delays when funds reach weaker member countries, possibly as early as the third quarter of 2021,” they said in a note on Monday.

The funds were expected to be available from January.

Highly indebted countries such as Italy and Spain, which have also been severely affected by the public health crisis, are struggling to provide financial assistance to their populations. Asked for a European-wide support package as an immediate consequence of the epidemic due to their poor economic condition.

Our people will pay a very high price for the blockade.

Michael Roth

German Minister for European Affairs

The stimulus plan is a combination of a seven-year budget of 1.074 trillion euros ($ 1.28 trillion) and an additional buffer of 750 billion euros (raised from public markets). The latter will receive 399 billion euros in grants and 360 billion euros in loans.

Hungary and Poland are expected to be among the financial beneficiaries of the scheme.

“I urge everyone in the EU to live up to their responsibilities. There is no time for veto, but to work quickly and spiritually if there is unity,” Germany’s European Minister Michael Roth told a news conference on Tuesday.

He added, “Our people will pay a very high price for the blockade.”

‘Serious but not disappointed’

But analysts are still expecting the deadlock to be overcome at some point.

“This is a game of chicken, which comes in serious but not disappointing,” German economist Daniel Gross told CNBC on Tuesday.

He noted that in contrast to the onset of the crisis, countries such as Italy and Spain now have “very favorable market access conditions” for European funds, meaning “these countries” can wait.

“Poland and Hungary will lose more than Italy and Spain due to delays,” he added.

Both countries experienced fewer cases of coronavirus in the spring than their southern neighbors, but there has also been a sharp rise in infections during the second wave.

The only way to deal with issues such as the actual rule of law (highlighting the centrality of the clause (used to remove the voting rights of members violating EU values) may be to prevent corruption and related issues. As a judicial independence, ” Analysts at the firm, Teno, said in a note on Tuesday.

His remarks suggest that the method of linking distributions to the rule of law would be watered down to bring Poland and Hungary into the board.

An EU official, who did not want to be named because of the sensitivity of the negotiations, told CNBC on Tuesday that “this is not the end of the story.”

The same official added that the process is now entering a “political phase”. This suggests that German Chancellor Angela Merkel and French President Emmanuel Macron could lead talks with Hungarian and Polish leaders.

.