Victor Orbán Caves in on Aid to Ukraine
But also — Agriculture, Red Sea, Growth, Inflation, UNRWA
Hi! It’s Thursday 8th February, and here is your EU news summary for the week. Feel free to share this newsletter with friends and colleagues, and follow us on Twitter and LinkedIn.
The Briefing
Viktor Orbán caved in. On February 1st, the European Council approved a top-up to the EU's long-term budget (also known as “Multiannual Financial Framework”) for the period 2021-2027. The top-up contains an additional financial aid of 50 billion euros for Ukraine.
THE AGREEMENT • The new facility for Ukraine includes 33 billion euros in loans and 17 billion euros in grants to support the country's recovery, reconstruction, and modernisation over the 2024-2027 period.
Against all expectations, this agreement was announced only half an hour after the start of the extraordinary European summit, which brought together EU leaders following Hungary's blocking of the revision of the EU's long-term budget on December 14th.
Compared with what a second veto on financial aid to Ukraine would have meant, the concessions made to Viktor Orbán seem light. Two paragraphs in the summit conclusions contain the conditions that allowed the agreement:
EU leaders will be able to hold an annual discussion on the implementation of the facility;
the Commission will produce an annual report on the implementation of the aid;
the European Council will be able to ask (by a unanimous vote in two years) the Commission to make a proposal to revise the aid program within the framework of the next Multiannual Financial Framework;
there is a "guarantee" — in Viktor Orbán's words — regarding the assessment of the blocking of 6.3 billion euros of cohesion funds for Hungary. This guarantee is reflected in the conclusions of the discussions on the budget of the European summit in December, with a line emphasising that this review should be carried out by the Commission in an "objective, fair, impartial, and fact-based" way, and ensuring that the mechanisms for blocking European funds are implemented in a "non-discriminatory" manner. While some see this as a sign of a future unblocking of funds withheld due to breaches of the rule of law in Hungary, it remains unlikely that Viktor Orbán will see this money anytime soon.
This agreement represents a failure for Viktor Orbán, who originally wanted aid to Ukraine to be decided annually, thus giving him the possibility to block funds every year.
PRESSURES • The conclusion of the agreement was the result of extensive diplomatic work by Viktor Orbán's European counterparts.
On the eve of the summit, the European Parliament had called on European leaders to approve this financial aid, with a large majority ranging from socialists to conservative reformists, with the exception of the Identity and Democracy group and the Left (GUE/NGL).
Most significantly, a small group of European leaders met ahead of the summit with the Hungarian Prime Minister to ask him to withdraw his veto. Italian Prime Minister Giorgia Meloni, French President Emmanuel Macron, and European Council President Charles Michel played a central role in this agreement by regularly engaging with Viktor Orbán over the past few weeks.
During the negotiations, heads of state and government presented a united front against Orbán and reportedly told him "there would be no more concessions." "Some of them openly discussed suspending Hungary's voting rights or freezing additional funds, and it seems to have worked," explains MEP Daniel Freund (Greens) to Euractiv.
WHAT NEXT? • The reform of the EU's long-term budget must now be approved by the European Parliament. In addition to the 50 billion euros for Ukraine, this revision includes approximately 15 billion euros allocated to various areas.
In total, the revision of the EU's long-term budget thus covers 65 billion euros. Among these 65 billion euros, 10 billion are reallocations, meaning they are redistributed from one area to another (budget cuts, in other words) — which the European Parliament does not like.
The European Parliament will vote on this revised budget at the end of February. Overall, MEPs are calling for more money to be injected into this long-term budget, especially towards (1) the "STEP" financing instrument aimed at supporting digital and energy transition-related technologies and (2) a fund dedicated to floods and other emergencies.
However, European Parliament President Roberta Metsola believes that Ukraine "needs the money yesterday." She hopes that the budget can be approved by the end of February, which would allow for the first payments to Ukraine in March and April.
In Case You Missed It
AGRI • On January 31, the Commission proposed several measures to address the anger of farmers which has been expressed over several months across Europe. A first proposal concerns the establishment of a "strengthened safeguard mechanism" allowing, in the event of "adverse effects" in certain Member States, to cap imports of Ukrainian food products.
The Commission also agreed with the idea, advocated by France and 22 other Member States, of a new derogation from the obligation to maintain 4% fallow land for large farms, as provided for in the new CAP, which would be replaced by conditioning certain subsidies on 7% biodiversity-friendly elements with intermediate or nitrogen-fixing crops.
RED SEA • The EU mission to protect commercial ships from attacks by Iran-backed Houthi rebels in the Red Sea could begin in mid-February, announced Josep Borrell, the EU's chief diplomat, on January 31. The operation will be strictly defensive, will not carry out any form of attack, and will focus solely on protecting commercial ships and their goods.
The EU's plan will differ from the US-British operation "Prosperity Guardian," which conducted airstrikes against Houthi targets in Yemen. Josep Borrell, who described the mission as a shield, specified that it will be deployed only at sea and that no land operation will be conducted.
The operation is expected to be further clarified following a meeting of the foreign affairs council on February 19.
GROWTH • During the last three months of 2023, the EU economy stagnated. This is indicated by the latest figures from Eurostat.
From early October to late December 2023, seasonally adjusted GDP (meaning without seasonal variations) remained stable in the euro area — a sign of stagnation. Between July and September, it had declined by 0.1%.
Eurostat estimates that for the year 2023, there will have been a growth rate of 0.5% within the euro area.
INFLATION • After slightly rising to 2.9% in December, inflation in the euro area fell to 2.8% in January. However, inflation in the price of services remains at 4.0%, which could reassure experts who believe that the European Central Bank (ECB) should ensure that a decrease in wage increases is taking place before lowering interest rates.
UNRWA • "Defunding UNRWA (United Nations Relief and Works Agency for Palestine Refugees in the Near East) would be both disproportionate and dangerous," said Josep Borrell, the EU’s chief diplomat, on February 4.
According to Israel, 12 UNRWA members have allegedly participated in the attacks on October 7. "It is shocking to see a suspension of funds to the Agency in reaction to allegations against a small group of staff," said Philippe Lazzarini, Commissioner-General of UNRWA, who claims to have ended the contracts of 9 of the identified individuals.
Philippe Lazzarini also launched an internal investigation to shed light on possible links between UNRWA and Hamas.
In response to these accusations, the United States announced on January 26 that they were suspending their funding for UNRWA. Several EU member states followed suit: Germany, Italy, the Netherlands, Finland, Austria, Estonia, and Romania.
Borrell's statement contradicts these decisions, emphasising the importance of humanitarian aid provided by UNRWA and calling Member States to not act hastily: "This would amount to punishing the individuals benefiting from these services first and foremost. The fault of an individual should never lead to the collective punishment of an entire population."
The European Commission stated "that no additional funding is planned for UNRWA before the end of February." Decisions on funding will be based on the results of the UN investigation into the involvement of UNRWA agents in the attacks of October 7.
What We’ve Been Reading
Jacques Pelkmans of CEPS has a plan to "revive and deepen" the single market.
In celebration of its 25th anniversary, Marco Buti and Giancarlo Corsetti present their recommendations for the euro in a column for VoxEU.
This edition was prepared by Luna Ricci, Lucie Ronchewski, Maxence de La Rochère, Augustin Bourleaud and Hana Rajabally. See you next week!