The Hungarian government has, since Russia’s invasion of Ukraine, consistently sought to delay or block European Union decisions on providing support for Kyiv. Last year, this was done in an attempt to force the rest of the EU to release budget funds for Hungary frozen over rule-of-law concerns – with the European Commission ultimately deciding to release funds. More recently, Hungary has obstructed funds over claims that it faces discrimination in Ukraine.
Whatever the claimed justifications, Viktor Orban has successfully delayed the disbursement of billions of euros of EU military aid to Ukraine. But other EU countries have been reluctant to proceed with the ultimate political sanction, available under Article 7 of the EU Treaty, which could see Budapest stripped of its voting rights in the Council of the EU.
However, the EU looks to have found another way around the impasse. Belgium, which presided over the Council of the EU during the first half of this year, presented in late June a new legal interpretation of EU rules in order to speed up the disbursement of military aid to Ukraine. This stated that since Viktor Orban at a summit of EU leaders in February abstained from an EU decision to seize the proceeds from immobilised Russian sovereign assets, the Hungarian government had forfeited its say on how these resources should be used to help Ukraine. That the money came from immobilised Russian assets, and not EU taxpayers, added to the alleged special legal circumstances.
This manoeuvre politically amounted to an issue-specific sanction. Based on a creative new legal interpretation, the other 26 EU members simply agreed to ignore Hungary’s objections and proceed as desired. With this unprecedented step, the rest of the EU dared Viktor Orban to file a case at the EU Court of Justice for breach of the EU Treaty. Alternatively, of course, Hungary could initiate its departure from the EU. Undoubtedly aware of the cost of leaving, and facing poor legal prospects at the CJEU, Hungary’s government has so far taken no action – and €1.4 billion in direct military assistance, derived from Russia’s assets, has been released to Ukraine.
These machinations are also important because the EU is trying to implement its side of a G7 agreement to provide Ukraine with €45 billion before the presidential elections in the United States. The EU’s roughly €20 billion share was supposed to be refunded from the future income stream from Russia’s immobilised assets. But EU sanctions on Russia, including the asset immobilisation, require unanimous approval of EU countries every six months. Fearful of another Hungarian veto on the continued immobilisation of Russian assets, the EU has begun planning alternative options to raise the needed money for Ukraine.
European Commission president Ursula von der Leyen during a 20 September trip to Kyiv has now proposed an “exceptional” loan of up to €35 billion, in essence offering new EU assistance for Ukraine, irrespective of US participation. Under the Belgium-inspired new legal interpretation, this exceptional Macro-Financial Assistance (MFA) loan would expand an existing, already approved aid programme and could be provided on the basis of “approval by the European Parliament and a qualified majority of EU Member States in the Council”, effectively removing Orban’s veto. This would amount politically to another issue-specific sanction in which the other EU members simply accept a legal interpretation that lets them ignore Budapest. This time though, the implications would be larger and likely lasting.
While the intent is ultimately to still rely on the proceeds from Russia’s frozen assets to repay the amount, the plan would see the EU increase its total current borrowing, backed by the common budget, by up to €35 billion – based on a non-unanimous decision of member states. This would be a drastic step and would establish an important new and expansive political precedent for the circumstances under which the EU can issue common debt.
So far, the EU has raised common debt to pay for MFA to third countries, rescue packages for euro-area members, common labour market instruments and the NextGenerationEU post-pandemic recovery initiative. In the case of aid to Ukraine the political circumstances are different because of the existence of frozen Russian assets for repayment and the urgency of helping Ukraine, which is felt most keenly among many of the EU’s traditionally frugal members.
But if the EU can – even under such special circumstances – issue common debt backed by the EU budget without the unanimous consent of member states, new ground will have been broken in EU fiscal integration – and it would be ironic if fiscal federalists had Viktor Orban to thank for this.