EU leaders strike last-minute deal on the new EU budget and Recovery Fund

At this week’s European Council Summit, EU leaders managed to strike a deal to unlock the EU’s 7-year budget and Recovery Fund – totaling €1.8 trillion. In recent weeks, the earlier agreement reached in July had suffered setbacks over vetoes from Hungary and Poland over the newly proposed rule-of-law mechanism. 

With compromise on the mechanism reached, vital funds can now begin to be released to help fuel the EU’s economic recovery in the wake of the COVID-19 pandemic and resulting economic crisis.  

In order to break the deadlock, and account for concerns by Hungary and Poland, the German Presidency of the Council, which chairs the negotiations, added an important declaration that the mechanism would not be used arbitrarily, be objective and ensure non-discrimination and equal treatment of the member states. In addition, the mechanism will only apply to the 2021-2027 EU budget. 

Crucially, the declaration provides the two countries with further safeguards, as the European Commission will not activate the rule-of-law procedure against any country, until the European Court of Justice rules on its legitimacy in the coming months. Hungary and Poland intend to challenge it before the EU’s highest judges.

The compromise was hailed by French President Emmanuel Macron as a success, with him tweeting that “Europe goes forward, united, and carrying its values”. Germany’s finance minister, Olaf Scholz, also expressed his relief in statement saying that “today’s agreement shows that insight triumphs over egoism. With this financial package, Europe can emerge powerfully from the crisis.”

Meanwhile, Budapest and Warsaw also claimed victory after the deal’s announcement. According to Poland’s Prime Minister Mateusz Morawiecki and Hungary’s Viktor Orbán, the future rule-of-law mechanism will have to be in line with the declaration conceded by the European Council this week. In claiming the win, Mr. Morawiecki went so far as to say that “we fight for our rights. We fight for clarity, we fight for certainty of law, and we fight for the EU treaty so that they are not circumvented by the secondary law.”

The eventual agreement was welcomed by European Council President Charles Michel, who said that “now we can start with the implementation and build back our economies.”

In a final procedural point, national parliaments will have to ratify the EU budget and Recovery Fund in the coming weeks in order for the agreement to enter into force.