Poland and Hungary chart different roads to accessing EU funds

Poland and Hungary chart different roads to accessing EU funds
Polish premier Mateusz Morawiecki (left) with Hungarian Prime Minister Viktor Orban (centre). / bne IntelliNews
By Wojciech Kosc in Warsaw December 13, 2022

The European Commission on December 12 okayed all of Poland’s plans to spend €76bn from the bloc’s Cohesion funds.

The money will flow to Poland from the EU’s budget for the years 2021-2027 and are separate from the €36bn in grants and loans Poland should receive from the bloc’s pandemic recovery fund, but which are currently frozen.

The Commission’s decision leaves Hungary as the only country to have some of its Cohesion funding frozen in line with the so-called Conditionality Mechanism, which ties the disbursement of funds from the EU’s budget to member states’ safeguarding them against corruption and rule of law violations.

Under an agreement reached in the very early hours of December 13, the EU countries agreed to freeze 55% of three EU Cohesion programmes for Hungary, €6.35bn in nominal terms.

The Commission originally wanted the freeze to cover 65% of the three funds but during the late-night negotiations, this was reduced in recognition of some reforms Hungary has already made and as part of a compromise in which Hungary dropped its veto to aid warn-torn Ukraine and to the minimum corporate tax (to which, in turn, Poland objects).

Hungary also had its plan to spend the recovery fund approved under the compromise agreement, though it will have to meet demanding milestones before the money is disbursed. The recovery fund for Hungary amounts to €5.8bn in grants – the plan to spend which had to be approved by the end of 2022 or 70% of the money would be lost - and up to €9.6bn in loans

The EU will revisit the Cohesion funds freeze sometime in the future, giving Budapest time to alleviate concerns over rule of law and corruption.

While Poland’s Cohesion funds do not appear threatened – despite major concerns over the country’s rule of law standards – Warsaw is still unsure of the billions from the recovery fund.

The Commission has approved Poland's plan for spending the money but says the money will only flow once Poland backtracks on changes in the country’s judiciary that undermine judges’ independence and impartiality.

That has created a rift between the main party of the coalition government, Law and Justice (PiS), and its smaller partner, United Poland.

Facing a year of economic downturn, the dragging war in neighbouring Ukraine, and, above all, an election, PiS is keen to unlock the funds even if it were to work with the opposition to pass legislation fixing problems with the country’s judiciary. 

Poland's deputy Foreign Affairs Minister Szymon Sekowski vel Sek said on December 13 that PiS would send relevant legislation - which centres on the Supreme Court - to the parliament this week. 

That, however, risks collapsing the coalition. PiS and United Poland have grown increasingly hostile in rhetoric in recent weeks over the recovery fund and the alleged EU’s blackmailing Poland over it. 

On the other hand, PiS vowed to defend United Poland’s leader, Justice Minister Zbigniew Ziobro, against a no-confidence motion filed by the opposition. The ruling coalition rejected the motion by a small but still comfortable enough margin of two votes on December 13.

It also remains unclear whether the opposition would like to lend PiS a hand in the parliament, effectively giving the government a lifeline.

Blocking solutions that would lead to the release of the recovery fund money is politically risky for the opposition as well, with PiS almost certain to blame it for lack of support and the eventually possible withholding of the funds.