Hungary challenges EU to a game of chicken, again

Good morning and welcome to Europe Express.

If Viktor Orbán’s antics feel like a déjà-vu, it’s because they are. The Hungarian prime minister has no qualms in using his veto, no matter how unrelated the issue, in order to extract a maximum of concessions from Brussels. We’ll look at the rationale behind this latest move and what diplomats expect will happen next week.

With Australia’s trade minister in Brussels yesterday, we also bring you the latest on the bloc’s efforts to seal a trade deal — and what French wine has to do with it.

And a new ranking on competitiveness and sustainability lists the EU according to their economic performance, quality of governance, social fairness and environmental efforts.

A Grinch in Budapest

As the EU hurtles towards Christmas and the end of the year with a number of policy proposals needing unanimous approval, one country with an axe to grind is playing the Grinch, write Valentina Pop and Henry Foy in Brussels.

Hungary was told by Brussels that its €5.8bn pandemic recovery cash and other EU funding wasn’t arriving anytime soon. In response, it is using the biggest weapon it has: a veto against any EU decision requiring unanimity among all 27 member states.

At a mammoth day of meetings of EU ambassadors yesterday, Hungary — having already vetoed an €18bn aid package for Ukraine on Tuesday — spoke out against a new Russia sanctions package and a proposal to double the EU’s fund for providing weapons to Ukraine and other countries.

“They are being difficult wherever they can,” said a senior EU official briefed on the meetings. “It is becoming rather predictable.”

Some diplomats already expressed anxiety that Hungary would “take hostage” all upcoming EU decisions that require unanimity, not just the €18bn for Ukraine and an OECD corporate tax deal that Budapest blocked in June.

“We should expect radical moves, we should be prepared,” said one senior EU diplomat.

Apart from the ninth sanctions package, another decision Budapest could veto is the expansion of the border check-free Schengen area to Croatia, and possibly Romania and Bulgaria (interior ministers are meeting today on this topic). Hungary has so far spoken in favour of Bulgaria and Croatia hasn’t received any information about a potential veto, but nothing can be excluded.

Orbán is again challenging the EU to a game of chicken because he knows Kyiv needs the new batch of funding as soon as possible. EU capitals have meanwhile started work on securing the money among the 26, but that requires more time and the approval of national and the EU parliaments.

Time is pressing on the Hungarian side, too. If the EU doesn’t approve the spending plans for the recovery funding by the end of December, access to up to 70 per cent of those billions will lapse.

An “update” to the rule of law assessment that underpins the European Commission’s recommendation to freeze a third of Budapest’s structural funding, requested by finance ministers by tomorrow, could pave the way for a compromise. The update could find that Budapest has made some progress, but still freeze some of its structural funds. This could lead capitals to endorse the recovery spending plans before they turn into a pumpkin on New Year’s Eve.

While diplomats expect Orbán to relent before next week’s EU leaders’ summit rather than risk a repeat of the bruising experience he had in the summer of 2021 (when multiple leaders lashed out at him over LGBT+ rights), patience is running thin.

“There’s no love lost for Hungary in the council, especially since this drama repeats itself at shorter and shorter intervals,” said a second senior EU diplomat.

Beef vs batteries

Australia’s trade minister was in Brussels yesterday seeking to strike a deal with the EU in the next six months, writes Andy Bounds.

Don Farrell’s trip to Europe included talks with Valdis Dombrovskis, the trade commissioner, the German government and most important, a visit to a vineyard with Olivier Becht, the French trade minister. Both men make wine.

France blocked progress on EU-Australia trade talks after Canberra scrapped a submarine contract with Paris last year as part of the much-decried Aukus deal. But Farrell said relations with his new Labour government were now so good that he expected President Emmanuel Macron to visit Australia next year.

He admits that French and Irish farmers’ concerns over relaxing restrictions would mean securing agricultural access would still be “difficult”. The deal would broadly be beef for batteries, as the “lucky country” is blessed with vast reserves of minerals such as lithium and cobalt vital for the EU’s renewable industries.

Farrell called for a sense of proportion. The current Australian quota equates to “one piece of steak for every European consumer once every 30 years”. He warned that “plenty of other countries” such as the US, China and Japan wanted Australian minerals.

“We want to make sure that not only do the Europeans share all of that wonderful [Australian] produce, they get access to all of the renewable energy sources of the future.”

To sum up, “We’re fair dinkum about wanting to reach an agreement.”

Hopefully someone can translate that into English for Dombrovskis.

Chart du jour: Leaders and weak performers

There’s nothing like a healthy bit of competition between EU member states. This time they are being ranked for how well they are driving towards the clean energy transition — while maintaining competitiveness on the world stage, writes Alice Hancock in Brussels.

The University of Cambridge is publishing a new “competitive sustainability index” today that uses data from Eurostat and the European Central Bank (and took two years to build) to rank EU countries according to four overall performance indicators: productivity, social fairness, governance and environmental efforts.

In a preface to the study, Paolo Gentiloni, the EU’s economy commissioner, said that indices like this one were “very important to be able to track progress in the best way possible, especially given that other parts of the world are now rapidly adapting and catching up”. The US Inflation Reduction Act, which offers big tax breaks for clean technologies, and China’s dominance of renewable technologies like solar panels have, in light of the recent energy crisis, become a more than an urgent concern in Brussels.

Countries that rank highest in the index are, unsurprisingly, the Nordics and Netherlands, which all score 70 out of 100 or above. Down at the bottom of the pile are Greece, Romania and Bulgaria. “Weak performers” include Spain when it comes to productivity and Italy on governance.

The bad news for the EU is that the research finds that “overall levels of entrepreneurial culture are worrying”. The bloc also needs to pour more money into research and innovation if it is to compete on the world stage, the study finds.

What to watch today

1. Interior ministers meet in Brussels to discuss Schengen enlargement

2. European Defence Agency annual conference takes place in Brussels

Notable, Quotable

The Chinese measures are highly damaging to European businesses

• See you in court: The EU has escalated two trade disputes with China (over Lithuania/Taiwan and patents) by asking the World Trade Organization to convene panels to rule on them, in the first cases the bloc has brought against Beijing for at least three years.

• German plot: Police in Germany have arrested 25 alleged rightwing radicals suspected of planning to overthrow the government in a violent coup — a plot that shows the spread of QAnon-style conspiracy theories in big western democracies.