World EU Readies Plan B to Skirt Poland and Hungary on Virus Fund

15:45  03 december  2020
15:45  03 december  2020 Source:   bloomberg.com

Opinions | While the U.S. deals with Trump’s attacks on democracy, the E.U. faces a threat of its own

  Opinions | While the U.S. deals with Trump’s attacks on democracy, the E.U. faces a threat of its own If the threat succeeds, Europe’s commitment to democracy will be fatally compromised. Whatever the cost, it is essential that E.U. leaders not give in. The trouble in the two former Soviet-bloc countries centers on their governments’ efforts to strip the judiciary of its independence, eliminate opposition media and, in Hungary’s case, corruptly divert E.U. funds to relatives and cronies of Prime Minister Viktor Orban. Both governments also have refused to accept refugees from Muslim countries, targeted the LGBTQ community with discriminatory measures and flirted with anti-Semitism.

EU funds are very often awarded to Orban's relatives or their associates. Tenders for projects to be financed with EU cash are sometimes tailored specifically for them. In the long run, this would place a much greater burden on Hungary 's economy than participating in the EU 's pandemic recovery plan .

Hungary and Poland blocked approval of the EU 's long-term budget on Monday, diplomatic sources revealed. The spending plans also include a € " Hungary has vetoed the budget," Zoltan Kovacs, a spokesman for Prime Minister Viktor Orban said, arguing that the package must reflect a deal reached

(Bloomberg) -- European Union leaders are readying a back-up option that can cut budget holdouts Hungary and Poland out of a multi-billion dollar stimulus fund and still hold them to rule-of-law conditions they adamantly oppose.

a group of people walking in the rain holding an umbrella: Main Market Square amid Coronavirus partial lockdown, Krakow, Poland. © Photographer: NurPhoto/NurPhoto Main Market Square amid Coronavirus partial lockdown, Krakow, Poland.

The eastern European nations’ leadership dug in on Wednesday against their 25 EU peers at a meeting of government envoys in Brussels. They continued to wield their veto over the aid package aimed at fueling a post-pandemic recovery as the clock ticks down to the end of the year, when a no-deal will trigger an emergency budget for the entire bloc.

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Hungary and Poland have blocked EU coronavirus recovery package. EU budget veto: Hungary and Poland block Brussels €1.1 trillion budget for the next 6 years. MEPs insisted on making funding transfers conditional upon adherence to democratic values, human rights and the

The rift between the European Union and its two budget holdouts is getting wider, with Poland and Hungary rejecting appeals to lift their veto and the rest of the bloc plotting to Diplomats say Polish premier is adamant he will veto EU plan . Rest of EU determined to not give in to Poland , Hungary .

With Warsaw and Budapest saying they can do without the money and the latter ready to allow EU states to skirt the need for unanimous approval via inter-governmental agreements, officials in the bloc are now focusing on what they’re calling “Plan B.”

It would be to cut Hungary and Poland out of the 750 billion-euro ($908 billion) coronavirus-rescue fund, effectively stripping them of the power to veto the deal. Passing the EU’s $2.2 trillion spending plan that way, including the 2021-2027 budget, would offer a way to channel funds to hard-hit regions without delay.

“If they don’t respect the rules in our game on the European level then we do it without them,” Manfred Weber, the head of the European People’s Party caucus in the European Parliament, told Bloomberg TV Thursday. “So they must be aware that this can be a big problem for their own countries.”

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In Poland and Hungary , I’ve heard officials say the EU ’s contributions are just compensation for opening markets to highly competitive Western firms and investors, which has turned their countries into the de facto economic colonies of wealthier European countries.

Poland and Hungary are blocking about 1.8 trillion euros worth of EU funds , including hundreds of billions due to be disbursed soon to help pull the 27-country bloc out of a double-dip recession caused by a second wave of COVID-19. Their prime ministers met in Warsaw on Monday after meeting in

Read more: Poland, Hungary Risk $220 Billion by Digging In on Stimulus

EU leaders will hold a summit on Dec. 10, which is now the most likely venue where they’ll try to resolve the standoff that also affects the next seven-year budget.

With Poland and Hungary both under rule-of-law probes in the EU, they’re potentially exposed if no deal is struck. They could face a lose-lose situation in which they’d forfeit a combined 180 billion euro ($218 billion) from the multi-year budget and the relief fund while still being subject to rule-of-law oversight.

Still, they remained defiant. Polish Prime Minister Mateusz Morawiecki said his country could cope with a potential exclusion from the virus relief fund because it can raise debt on financial markets cheaply.

“The reconstruction fund is essentially constructed from credit,” Morawiecki said answering online questions late on Wednesday. “Yes, it’s a low-interest loan, but today we can also place a very low-interest loan on the market -- by issuing bonds.”

A Hungarian official compared billionaire George Soros, who is a Holocaust survivor, to Adolf Hitler

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THE European Union is on the brink of an economic disaster, a Brussels chief has admitted, as Poland and Hungary continue to block vital funding . The European Parliament President added: "If that’s not the case, there isn’t a Plan B . European Parliament President David Sassoli has issued a

The European Commission is to sue Poland , Hungary and the Czech Republic at the European Court of Justice (ECJ) for refusing to take in asylum seekers. The commission, the EU 's executive body, accused the three countries of "non-compliance with their legal obligations on relocation".

Borrowing Billions

Poland’s borrowing costs have dropped after the country’s central bank slashed interest rates to nearly zero and launched a bond-buying program in the spring to help mitigate the impact of the pandemic lockdown.

The yield on the benchmark 10-year zloty bond now stands at 1.27%. That compares with negative borrowing costs for loans that would be extended from the EU’s recovery fund based on current yield levels.

Still, if the EU shuts off the taps, it would require the government in Warsaw to borrow “tens of billions of euros” in the next six years, said Mateusz Milewski, a debt trader at MBank SA in Warsaw. And while neither Poland nor Hungary are in immediate financial danger, the lack of an EU backstop could hit the zloty and forint and drive borrowing costs higher.

“If Poland were to cover the lack of EU funds with its own issuance, we would have to deal with considerable leap in yields,” Milewski said.

Veto Rights

Hungary has also financially positioned itself for the standoff. The government sold 2.5 billion euros worth of Eurobonds last month, taking its annual foreign currency issuance to 6.5 billion euros, the highest since at least 1999.

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Hungary is ready for further talks, while reserving its right to veto the financing agreements over conditions it continues to regard as unacceptable, Cabinet Minister Gergely Gulyas said.

Prime Minister Viktor Orban’s government remains ready to accept the EU rescue fund being implemented in the form of an intergovernmental agreement, out of “solidarity” with southern states, though again only if no objectionable conditionality is attached, Gulyas said.

The Plan B option is a “fall-back” if Hungary and Poland don’t relent over their opposition, Weber said.

Poland and Hungary “are walking on a very tight rope,” Spanish Foreign Affairs Minister Arancha Gonzalez Laya said in an interview with Bloomberg TV. “It’s a question of responsibility, and that is why what we are asking for is responsible behavior on the side of Poland and on the side of Hungary.”

(Updates with market comment starting in paragraph 10.)

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Merkel: End of budget blockade an important sign of Europe's ability to act .
Chancellor Angela Merkel (CDU) campaigned for the compromise proposal in the budget dispute with Hungary and Poland at the EU summit. An end to the blockade of the EU budget and the Corona aid fund would be "a very important sign of the European Union's ability to act," said Merkel on Thursday in Brussels. She, too, has worked "very intensively" on the compromise in the past few days.

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