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European Union Seeks to Influence Hungary, Poland Through Budget Funds

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It’s the $1.5 trillion question. Can the European Union’s executive body, the European Commission, use the upcoming union budget for 2021-27 to curb what many in Europe see as member states riding roughshod over the rule of law, independent institutions and even democratic norms?

Proposals tabled by the European Commission (EC) in May to link EU funding to member states’ adherence to the rule of law have gained traction among critics of the governments of Poland and Hungary, which are respectively the largest and fourth-largest beneficiaries of EU funds.

The proposal is one of a mounting number of challenges from EU institutions to member states in Central and Eastern Europe (CEE), and arguably the most potentially explosive. At stake is not just large sums of money — Poland and Hungary received €77 billion ($93 billion) and €22 billion ($26 billion), respectively, from so-called “cohesion funds” designed to support less affluent regions of Europe in the 2014-20 budget, according to Guy Verhofstadt, leader of the European Parliament’s liberal grouping.

a4.eu.hungary.orban.storyThe battles between several CEE governments and leading Western European member states and EU bodies encompass the very definition of what “European values” entail; conflicting narratives of post-communist development; and the concept of sovereignty, which looms large in the Brexit era.

The charges against Poland and Hungary in particular are fairly clear: They have rigged independent institutions of state including the judiciary to the benefit of ruling parties, undermined media freedom and mounted attacks on civil society that hold governments to account.

The EU’s ability to censure its member states is limited, though, because of the veto power each member wields. That’s why some EU officials say the proposed new budget scheme — which would rely on majority voting, not the veto — is needed to preserve the democratic principles on which the bloc is based. They also point out that Poland and Hungary have disproportionately benefited from the EU’s largesse over the years, helping them become post-communist success stories, but are now flouting its rules. In short, they want the EU’s money without the strings attached.

a4.eu.hungarian.parliament.storyPoland and Hungary counter that tying funds to issues such as rule of law would come down to subjective judgments that would give bureaucrats in Brussels capricious new powers to punish those they deem unworthy of the funds. They also argue that those funds go both ways, benefiting not only post-communist governments, but also Western European nations that have profited from open markets in the East. And they say Brussels doesn’t have the right to infringe on decisions taken by democratically elected governments.

Poland has been ruled by the conservative nationalist Law and Justice Party (PiS) since its unprecedented election landslide in 2015, while an election in Hungary in April gave another supermajority to Fidesz, a party of similarly populist and euroskeptic bent led by controversial Prime Minister Viktor Orbán, in power since 2010. Journalist and academic Timothy Garton Ash, who covered the region as communism atrophied and collapsed in CEE, has warned of “creeping authoritarianism … inside the European Union,” while Piotr Buras, head of the Warsaw office of the European Council on Foreign Relations, says that recent moves by the Hungarian and Polish governments on civil society and the judiciary, respectively, risk precipitating a wider crisis in the EU.

“Europe has moved a few steps closer to the brink,” he wrote in early July, adding: “Europe’s next crisis over the rule of law and democracy could be its last.”

On July 9, PiS leader Jarosław Kaczynski, considered to be the effective power behind the Polish government despite being only a backbench MP, insisted that the administration would continue to push ahead with sweeping reforms to the judiciary despite the EC initiating a process that could, in theory, lead to Poland being stripped of its EU voting rights under Article 7 of the bloc’s Lisbon Treaty.

Specifically, the Warsaw government has imposed a retirement age of 65 on its Supreme Court judges, with the effect that around 27 of the 72 judges should be ousted. The move has been resisted by Chief Justice Małgorzata Gersdorf, who has labeled the reform unconstitutional and returned to work in mid-July. Other judges have either complied or applied to PiS-backed President Andrzej Duda for a term extension.

The change would perhaps be less controversial if new judges were not due to be replaced by the National Council of the Judiciary — a body that, thanks to previous PiS legislation, is now under parliamentary control and thus, critics say, that of PiS, which has an absolute majority. The EC already has an active court case against Poland for reforms that it says give the justice minister excessive control over ordinary courts.

a4.eu.poland.parliament.eu.storyPiS and its supporters argue that the changes are both necessary and popular — and indeed there is widespread support for judicial reforms of some sort. Kaczynski argues that his democratically elected government’s program is threatened by an unreformed judiciary that has the capacity to roll back popular policies. For years, some PiS sympathizers in Poland and beyond have talked of a so-called “uklad” (often translated as “system”) of communist and ex-communist figures in politics, business and state institutions that has carved up power since 1989 and needs to be uprooted for Poland’s transition to be complete.

Similar arguments have been made by Hungarian government figures — that much of the modern post-communist state architecture is tainted and compromised. Too often, the arrogant, conspiratorial and sometimes corrupt behavior of PiS and Fidesz’s predecessors, including ex-communist parties, lends these arguments some weight.

A desire to uproot a “deep state,” beyond expediency, is the main reason that Donald Trump and his drain-the-swamp rhetoric have been embraced by governments in Warsaw, Budapest and Bucharest, as well as the rising right in Slovenia. However, opponents point out that the old structures and figures are merely being replaced by new ones more favorable to (or in some cases actively a part of) the ruling parties. They also accuse parties like PiS of hypocrisy, having built a large following in part by trafficking unproven conspiracy theories (most notably that a shadowy cabal of liberal intellectuals and “reds” threatens the country).

But sympathizers of the reforms see Western criticism as exaggerated, even hypocritical.

“You cannot find a single regulation in our legal system that does not have its equivalent in other EU member states,” says Krzysztof Kaminski, president of the Warsaw Institute, a conservative-leaning Polish think tank. “There are some minor differences here and there, but accusing Poland of breaching EU values is nothing else than applying double standards.”

a4.eu.poland.parliament.storyHe adds that previous Polish governments have also, like those in other Western democracies, appointed their own people to positions of influence. Nonetheless, PiS’s actions are widely seen as going considerably further and being implemented more robustly (or even brutally) than those of its predecessors. Kaminski argues that the EC should take into account differences between legal systems before pushing forward its proposed rule-of-law link to funding, and that other governments should give pause, given that the principle could be used to punish member states in future disputes with Brussels.

Zoltán Kovacs, a Hungarian government spokesman, argues that the rule-of-law link would require a change to EU treaties and “cannot be, as a matter of principle, a ground for discussion.”

Kovacs and other CEE officials also say that the proposed budgetary rules reinforce a misguided and patronizing idea that cohesion funds are a gift of the benevolent West to Europe’s eastern fringe — “generosity” in Verhofstadt’s words. They point out that the price was opening their markets to Western European businesses with little protection for domestic ones, with substantial (though largely unmeasured) benefits to the older member states, and that the financing is intended to close the gap between West and Central-East — a gap that is narrowing only slowly.

This fits neatly with narratives promoted by the more euroskeptic governments in CEE that they are misunderstood, “lectured” or, worse, blackmailed by the EC and Western European leaders.

This has been an emerging trend since the Orbán government started to push controversial reforms in Hungary to, for example, regulate media and pressure civil society groups, leading to widespread criticism. There are also hints that, having thrown off the shackles of Soviet dominance, CEE countries are reluctant to cede sovereignty to Brussels or Berlin.

This narrative was exacerbated during the 2015 migrant and refugee crisis, which led to Hungary building extensive border fences and Orbán portraying himself as a defender of Europe while Germany’s Angela Merkel opened the floodgates. The anti-immigrant rhetoric resonated well beyond Hungary’s borders, including with populist conservatives in Western Europe. Orbán has continued to assume the mantle of Crusader, regularly emphasizing the Christian nature of Europe in speeches (and even going so far as to threaten jail time for those who help undocumented migrants).

Officials from Poland, Hungary and other CEE states draw a distinction between their own societies — with historically low levels of non-European immigration — and those of the West, usually portraying the integration and security problems faced by the latter in an unflattering light.

CEE governments have had a degree of success domestically in arguing that they are defending “European values” of identity and social cohesion by refusing to accept migrants. This is set in stark contrast to insistence from Brussels and some Western European capitals that these values entail accepting refugees with compassion, and sharing the European burden from the crisis, as well as protecting the rule of law, freedom of media and the foundations of democracy.

a4.eu.summit.brussels.storyIndeed, the refusal of the Czech Republic, Hungary and Poland to comply with EU decisions in 2015 to relocate or resettle immigrants has led to further EC action, with the commission currently moving to sue the countries at the European Court of Justice.

“The EU has always placed a strong emphasis on ensuring the promotion of its values, but up until now this has always been an aspiration more than an actual command,” says Samantha Seewoosurrun, managing director of Acuitas, a Brussels-based public affairs and communications consultancy. “It is undoubtedly the case that recent developments in both Poland and Hungary stretch the limits of what the EU machinery would consider to be acceptable, but at the same time they are still democratic countries and the EU is a strong supporter of democracy, so again how far can it go?”

One reason that the EC may be pushing the rule-of-law proposals is that serious action under Article 7 seems unlikely, given that Hungary has pledged to veto any move to strip Poland’s voting rights. Even EC President Jean-Claude Juncker and the commission’s top civil servant, Martin Selmayr, are said to be opposed to the move, reflecting wider concerns that the EU cannot afford to splinter at a time of internal and external threats such as Russian aggression and eurozone reform.

a4.eu.warsaw.poland.storyUnlike action under Article 7, putting in place a rule-of-law link in the EU budget would be considerably harder for a single member to veto, requiring a larger coalition of member states to block it. Seewoosurrun says that much now rests on whether large Western European member states decide to back the EC proposal. Even with countries such as Bulgaria and Romania (entangled in their own mounting rule-of-law crises) in opposition, the measure could well pass.

Even if it doesn’t, the EU has other ways to influence continental affairs through its budget. Britain’s impending exit from the bloc will deprive it of about €10 billion in annual funds. Faced with the loss of U.K. revenue and growing threats such as migration and terrorism, the EU is considering redistributing cohesion funds based not only on per-capita GDP but other factors such as youth unemployment. This could divert money from CEE states to struggling southern economies such as Greece and Italy. On the one hand, the move could be seen as a subtler form of retaliation against Poland and Hungary; on the other, it could simply be an acknowledgement of a new reality in which Poland and Hungary are today relatively prosperous while their neighbors to the south are now the ones that need additional assistance.

Despite the heated debates over who deserves a bigger slice of the EU budget, many experts say a clear split between West and East is exaggerated. CEE countries are not monolithic, with great differences on policy toward Russia and minority rights.

A thaw in relations between Warsaw on one hand and Brussels, Berlin and Paris on the other thus may prove significant in protracted negotiations over the budget. The appointment of Mateusz Morawiecki as Polish prime minister in December 2017 has helped; the former banker is seen as a more moderate, technocratic face of the government. PiS has shown that it does bend to internal and external criticism (it backtracked on a controversial Holocaust law and a proposal to severely restrict abortion, for example). PiS is also starting to eye a wave of elections in Poland, in which it is likely to need swing voters as well as its core voter base to retain its parliamentary majority and the presidency, as well as to perform well in European Parliament and local polls. Nonetheless, Morawiecki has continued to push ahead with some of the government’s more controversial reforms, so any rapprochement will have its limits.

To the south, Hungarian government officials, flush with victory, warn that by adding extra conditionality to EU funds, the EC risks not being able to pass a budget at all.

A classic EU compromise at the eleventh hour is still perhaps the most likely scenario, given a strong desire by Brussels to preserve European unity and for CEE countries to keep the money flowing. This would arguably further undermine the EU’s ability to uphold its values, but avert a crisis in the short term. The budget could even theoretically be a way to bind the wounds of the past decade. But the past few years have exposed festering divisions that aren’t likely to heal any time soon.


About the Author

Andrew MacDowall (@andrewmacdowall) is a correspondent and analyst focusing on Central and Eastern Europe who has contributed to publications including The Guardian, Financial Times and Politico Europe.

Last Edited on August 1, 2018