“Not good, not bad, as good as possible” compromise on the EU’s budget

These past days and weeks we heard a lot about the Union’s long term budget and the conditionality of its approval based upon the rule of law, that provoked the blockade of the bloc’s €1.8 trillion package since the vote of veto by Hungary and Poland (as we discussed here on our blog). But finally a compromise was reached during the last meeting of the European Council on 10-11 December.

“Ursula von der Leyen, Charles Michel, Angela Merkel - Brussels, Belgium - 11/12/2020 - by European Union, 2020 - Photographer Etienne Ansotte - is licensed under CC BY 4.0 (not modified)”

How did EU leaders manage to do so, overcoming the impasse that was putting in danger the Union’s next seven years spending plan, including the Next Generation EU to deal with the Covid-19 crisis? Did a part end up more satisfied than the other or was a win-win/lose-lose situation? What are the implications in the short and long term following this compromise? And what will happen now? In this article we will try to answer all these questions clarifying the dynamics that lead to the compromise on the Union’s budget and recovery package and the next steps.

On Thursday 10th EU leaders met in Brussels to discuss the much debated Union’s budget and the other important points on the agenda for that meeting: Covid-19 developments, climate change, security and external relations of the EU.

Germany, the current holder of the presidency of the European Council, managed to negotiate a compromise that keeps unchanged the new mechanism on the rule of law but that will not be used until Poland and Hungary will have had the chance to challenge its legality in the Court of Justice of the European Union and get a verdict.

Time pressure played a major role in the negotiations since all Member States knew the potential damaging consequences in case no deal was found: an emergency spending programme for 2021 would have been necessary, resulting in important losses on fundings as we previously illustrated here.

The Slovenian Prime Minister Janez Jansa described the deal as “not good, not bad. As good as possible.”, one and overall a “typical EU compromise”, he said to POLITICO journalists.

The compromise seems to have allowed all sides to claim “victory”. “Common sense has prevailed”, the Hungarian Prime Minister Viktor Orban declared in a Facebook video and the French President Emmanuel Macron tweeted that “we just adopted a robust agreement on the mechanism to put in place, to respect the rule of law. Europe goes forward, united, and carrying its values.”

While the European Parliament still needs to greenlight the long-term budget and national parliaments have to provide consent in order for the €750 billion recovery fund to become operational, Thursday’s deal was likely the last major political hurdle at EU level to the implementation of the package.

In practice, the concession to Warsaw and Budapest means that the implementation of the rule of law mechanism will be delayed at least by months, possibly longer.

Moreover, the compromise also states that the rule of law mechanism only applies to the 2021-2027 EU budget and recovery fund.

EU leaders agreed that the European Council will strive to formulate a common position in case a country facing penalties for the rule of law requests a discussion of its case. This way the matter could go all the way to EU leaders but it does not say that they would be able to block any penalties.

The request of Poland and Hungary to include a unanimity clause to apply the rule of law conditionality was rejected, since it would have mined the effectiveness of the entire mechanism.

Some EU leaders, especially the Dutch Prime Minister Mark Rutte, a longtime proponent of a strong link between EU money and respect for democratic norms, sought additional legal and political assurances about the compromise but declared themselves satisfied on Thursday evening. Rutte particularly wanted to be reassured upon the fact that even if the implementation of the mechanism is delayed, the European Commission would be able to retroactively address rule-of-law breaches.

“Now we can start with the implementation and build back our economies,” European Council President Charles Michel tweeted after the agreement was reached. “Our landmark recovery package will drive forward our green & digital transitions.” he added.

Cover picture: Unsplash