A senior European Council official has denied press reports that the EU is considering cutting off Hungary from EU funds completely if it again blocks the proposed €50bn aid package to Ukraine at this week's summit. The EU retreat comes as Budapest indicated the basis for a potential compromise.

The fact that the briefing note was leaked to the press reflects the growing frustration in European capitals at the tactics of Hungary’s strongman Viktor Orban, local media reported on January 29. In related news, Washington is also exerting pressure on Hungary to approve Sweden’s Nato membership.

The document cited by the Financial Times was background material prepared by the Council secretariat detailing the situation of the Hungarian economy, but it has nothing to do with the current negotiations, a senior European Council official told a correspondent of Budapest-based HVG’s covering EU issues on January 29.

The business daily reported, citing a senior EU source, that EU governments are now starting to get fed up with the constant Hungarian veto threats and are looking for ways to counter them.

"This is Europe telling Viktor Orban that enough is enough; it’s time to get in line. You may have a pistol, but we have the bazooka," Mujtaba Rahman, Europe director at consultancy Eurasia Group was quoted as saying.

Plans have been drawn up to "sabotage the Hungarian economy", by keeping funding to Hungary frozen to Budapest for torpedoing the EU’s foreign policy. Without EU funding, financial markets and foreign companies would be less interested in investing in the country, which could quickly trigger an increase in the cost of financing the public deficit and a collapse of the currency, according to the plans.

The leaking of the Financial Times story on Monday was enough to send jitters on financial markets, which weakened the forint.

Several capitals are also considering using Article 7, which would allow Brussels to strip Budapest of its voting rights, one diplomat said.

However, Didier Reynders, the European Commissioner for Justice, said on January 29 that this was not currently on the table, given that it requires unanimity, reported Euronews. "There is no decision in the Commission at this moment in time to trigger the next step under Article 7," Reynders said after a meeting of European affairs ministers in Brussels.

"It's not possible for the Commission to take a decision in the process," Reynders said, until there was " a clear signal in the Council about the possible majority or qualified majority, or at the end, maybe not so far, a unanimity to take a decision". 

Ahead of the summit on February 1, several proposals have emerged on how the EU might react if Orban blocks the joint initiative on Ukraine. Orban blocked the proposal first at a European Council summit before Christmas.

The EU26 without Hungary could send money to Kyiv outside the EU budget on an intergovernmental basis. The plan "B" in however would require national parliaments’ ratification and would take more time.

Orban’s political advisor Balazs Orban on X tweeted that the EU institutions were "blackmailing Hungary despite [it] making a compromise proposal".

In a shift in the Hungarian position, Hungary has indicated that it might accept Ukrainian aid coming out of the main budget, financed by common EU borrowing. Hungarian European Affairs Minister Janos Boka told the Financial Times that the government could be open to allow the use of the EU budget, so long as there was the possibility of a review after two years. Initially, Orban had proposed to split up the €50bn aid in four tranches to be approved on an annual basis.

Belgian Foreign Minister Hadja Lahbib told reporters on Monday that Belgium, which holds the rotating presidency of the European Council, was currently working on an agreement with all member states.

Ukraine has also held talks with Hungary to settle any outstanding issues over the language rights of its ethnic Hungarian minority, which Budapest has sometimes cited as a reason for halting aid.

Orban is coming under increased pressure from Washington at the same time for delaying the ratification of Sweden’s Nato membership.

The U.S. Embassy tweeted that Ambassador to Hungary, David Pressman will be travelling to Washington on Monday for discussions with senior U.S. officials. Ahead of the trip, Ben Cardin, the Democratic chairman of the Senate Foreign Relations Committee, said Hungary was the weakest link and the most unreliable member of Nato.

The last time Pressman was "summoned" came in April 2023, after which Washington announced sanctions against the Budapest-based International Investment Bank, forcing Budapest to recall its delegates to the bank. The bank later withdrew from Hungary back to Moscow because it could not meet its financial obligations.