Finance ministers to tussle over Hungary funding

Good morning and welcome to Europe Express.

Eurozone and EU finance ministers are meeting in Brussels later today and tomorrow and are set to deliberate over the highly charged question of Hungary’s EU funding lines. We’ll look at wrangling over whether to freeze some of Hungary’s cohesion funds while approving its Covid-19 recovery plan, and at what the possible landing zones could be.

Meanwhile, EU and US officials are in Washington today, with European Commission chief Ursula von der Leyen having set the tone when she floated the possibility of further easing of the bloc’s state aid regime in response to the US green subsidy plans.

Also happening today: The long-debated oil price cap on shipped Russian crude comes into force and we’ll bring you up to speed with how this saga concluded (for now).

And with the European People’s party having got together for a team building session in Greece, we’ll look at the issues of this political family after the departure of Angela Merkel, aka Mutti.

What to do about Hungary

The European Commission’s announcement last week that it wanted to withhold billions of euros from Hungary because of corruption concerns was by no means the final word on the matter, writes Sam Fleming in Brussels.

The decision to actually freeze €7.5bn in cohesion payments will only take effect if the commission wins the agreement of EU governments. The outcome is highly uncertain as finance ministers prepare to discuss the topic tomorrow.

The commission recommended the funding freeze after concluding that Budapest fell short in delivering 17 commitments to reform the rule of law by a November 19 deadline. The commission found some “central aspects” of those measures had not been delivered upon, in particular related to the effectiveness of Hungary’s newly established “Integrity Authority” and the judicial review of prosecutorial decisions.

That freeze proposal will take force if a qualified majority of EU member states endorse it. But some capitals want the commission to take into account further changes Budapest has made since the cut-off date — a view that is in turn opposed by states that want to take a tougher line on rule of law.

A further review of recent developments in Hungary could end up giving a more positive impression of progress, while falling short of resolving all complaints. In that case, the commission could opt to withhold less money from Budapest than in its initial proposal, but that remains to be seen.

The question of the proposed funding freeze is not by any means the only moving part in the complex diplomatic gymnastics going on over Hungary.

The outcome of the debate over the 17 reforms will also affect Hungary’s payments under its €5.8bn recovery plan, which the commission approved last week, and which member states also need to endorse. Here again, the EU capitals are divided over the best course of action.

Hungary has been blocking unrelated decisions that require unanimity in the council such as the EU’s implementation of the minimum effective corporate tax rate agreed by the OECD last year, and the €18bn of low-cost loans to Ukraine next year. Budapest is widely accused of holding these other files hostage as it tries to clinch approval for its recovery funding.

Some diplomats are now asking whether the vote on the Hungarian recovery fund should be pushed back until after the other files are unblocked, as they seek ways of pressuring Hungary to co-operate.

This intertwined set of issues is unlikely to be resolved tomorrow. Capitals are already preparing for a further emergency Ecofin meeting on December 12.

Chart du jour: Back to cash

Italy’s new prime minister Giorgia Meloni has made no secret of her dislike of banks and the previous government’s drive to promote digital payments. Now, her new draft budget for next year would give merchants the right to refuse digital payments for transactions below €60.

A crude awakening

After months of debating how a price cap on Russian oil should work, and weeks of haggling over exactly what value it should be capped at, we now get to see if it actually works, writes Henry Foy in Brussels.

Ever since the G7 announced that it planned to bring in such a scheme, oil industry officials, analysts and journalists had sneered at the idea as a fantasy, a triumph of western arrogance over market reality.

That scorn has only been exceeded by Russian president Vladimir Putin, who relies on oil exports for a fat chunk of his daily income and to fund his war in Ukraine.

G7 countries, plus Australia and all of the EU, say that their companies will not provide insurance cover or shipping services to any traders who have bought Russian crude at more than $60 a barrel. That, they assert, will allow other countries to buy Russian oil, but at less profit for Putin.

Russia has said it will refuse to sell any crude under the terms of the cap. If that means it needs to reduce production, so be it, the Kremlin’s oil supremo Alexander Novak said yesterday.

Moscow’s bet is that western capitals, already struggling with high gas prices, won’t stomach rising oil prices if supply falls. It also reckons it can skirt most of the impact of the cap through a fleet of more than 100 tankers it quietly bought up this year (as the Financial Times revealed late on Friday).

It could also get some help from non-EU shippers willing to push the limits of the new legislation. The cap specifies a 90-day ban in the EU on anyone who circumvents it. So if a shipper can make enough profit on contraband Russian crude to afford to dock the vessel for three months afterwards, why not?

Either way, the talking (and talking and talking) is over. We have a cap. Let’s see what difference it makes.

Soul-searching in Athens

More than a year after the centre-right European People’s party lost its most powerful member, German ex-chancellor Angela Merkel, the once-mighty political family is struggling to figure out its priorities ahead of the 2024 EU elections, writes Eleni Varvitsioti in Athens.

Part of the post-Merkel introspection was a retreat in a five-star Athenian riviera resort over the weekend, where the now much diminished group of EPP leaders met for an informal session that ended with dinner and drinks overlooking the Aegean.

Even though the EU elections are 18 months away, participants sensed an early appetite by some members for the Spitzenkandidat (lead candidate) position of the party. Part of the discussion was how to avoid a repeat of 2019 when Spitzenkandidat Manfred Weber ran the EPP campaign only to be discarded by Merkel and for von der Leyen to end up in the commission top job.

One idea is clear: don’t start the process too early. Some officials look back admiringly to the first and only time a Spitzenkandidat did manage to scoop up the commission presidency: Jean-Claude Juncker in 2014 (when it was clear that leaders would approve, even if at the time UK prime minister David Cameron was opposed).

The Athens discussion was also an opportunity for leaders to complain about what is bothering them domestically: Austrian chancellor Karl Nehammer spoke about migration to his landlocked country, Romania’s Klaus Iohannis bemoaned the decades-long delay in joining Schengen and Spanish opposition leader Alberto Núñez Feijóo criticised the Socialist government for its public sector hiring spree, just a few months before elections.

This type of family gathering will be repeated twice next year, before deciding on the Spitzenkandidat in early 2024. Until then, the EPP can only hope to get its mojo back.

What to watch today

1. Eurozone finance ministers meet in Brussels

2. EU-US Trade and Technology Council reconvenes in Washington

3. Terror trial on the 2016 attacks starts in Brussels

. . . and later this week

1. EU-Western Balkans summit takes place in Tirana tomorrow

2. Transport and telecoms ministers meet in Brussels tomorrow and Wednesday

3. Justice and home affairs ministers meet in Brussels Thursday-Friday

Notable, Quotable

The idea that the Russian invasion [of] Ukraine can be ended by the west giving security guarantees to Russia is falling into the trap of Putin’s narrative

• Baltic pushback: French president Emmanuel Macron was strongly criticised by Kyiv and Baltic capitals yesterday after suggesting Russia would need to be given security guarantees as part of future peace talks over Ukraine.