The EU summit held on December 14-15 was historic for Ukraine, providing an opportunity to start negotiations on EU accession. However, the joyful atmosphere is darkened by Viktor Orbán's new veto. After Ukraine's diplomatic victory, Hungary vetoed a financial package that included 50 billion euros in aid to Ukraine.
The Hungarian leader, bowing to pressure from his colleagues, agreed to a positive solution for Ukraine, but refused to support the financial package. This raised questions about whether this summit can be considered a victory for Ukraine, and how serious Orbán’s veto of the financial package is. Many people are concerned, as it concerns external financing, which is key for the Ukrainian budget during the war. However, despite this, the temporary blockade of Hungary is considered an unfavorable circumstance, and money is available for Ukraine. The EU is considering various options for providing financial assistance to Kyiv, and the financial package is due to be approved on February 1, and this time it is planned to overcome Orbán’s veto if it arises again.
EU funding
External funding, a vital resource for Ukraine during the war, has been put in doubt by political turmoil in the US, halting the flow of funds. Until now, the main donors have been the European Union and the US. However, a financial vacuum could set in from early 2024 as EU funds run out and a new programme, the Ukraine Facility, has yet to receive final approval.
This program, estimated at 50 billion euros, is not only extremely large in size, but also provides long-term financing for four years. Importantly, this could provide Ukraine with financial stability without the need to constantly pump out new tranches, overcoming resistance from individual EU member states, in particular Hungary.
Although the final approval of the program will take place at an extraordinary summit on February 1, there is already a preliminary agreement on the amount of funding, and Ukraine will receive these funds even if the only opposing vote is a Hungarian veto. However, it remains a question of whether Hungary will be able to be convinced to support the program, but its leader Viktor Orban has outlined an opportunity to “make sure.”.
Negotiations from the inside
When shedding light on the backstage of the recent Euro Summit, which discussed the issue of Ukraine and a significant financial package, it is worth turning to the statements of European politicians who participated in these negotiations.
One of the key participants, Viktor Orbán, revealed numerous details of the discussions during an interview on his controlled radio station, Kossuth. The interview was entirely dedicated to the EU-Ukraine summit and included many details, including the €50 billion discussed.
An important aspect is the absence of a technical Hungarian veto. The decision on the Ukraine Facility was not put to a vote, as it was known that Orban would express his disapproval. During the discussion, it was immediately noted that he would not support this decision. Attempts to convince him lasted for hours and ended in failure.
While Orban left the room at the previous meeting, allowing other leaders to make decisions on EU enlargement, he did not do so this time. He argued that Ukraine's accession process currently poses no threat to Hungary and that distributing funds would mean spending Hungarian money.
The important point is that Orbán wanted to return home with some kind of victory. He promised his voters that he would not start negotiations with Ukraine and even held an emergency session of parliament to cement his refusal. Finding himself in difficult circumstances, he could not return without some victory that he could “sell” to his voters as a demonstration of his strength. Thus, he refused to vote for the decision on 50 billion euros.
How will money be transferred to Ukraine without Hungary's consent?
Viktor Orbán's expected refusal surprised no one. However, there are certain points that were counted on, especially after Hungary was promised a financial reward for this negative vote (this is not an exaggeration, more on this below).
However, the refusal of the head of the Hungarian government was taken into account in the plans. According to “EuroPravda”, after Orban’s firm “no”, other countries considered the option of “joint financing from 26 countries”. The idea was to create a separate fund to which all EU member states would have to contribute. However, this proposal did not receive enough support.
There are several arguments against such a simplistic approach.
First, it would allow Orban to look like a clear winner. He could brag to his voters that he is the only one keeping budget money for his people, while other countries are spending it on Ukraine. Some politicians might perceive this as supporting populists or Putin supporters with similar demands.
Second, this path would require considerable time, as in many countries budgets have already been approved by parliaments. Amending budgets is a process that can sometimes cause a blockade by populists or Putin supporters.
Despite this, there is an agreement in principle to provide assistance to Ukraine, although the choice of funding path remains open.
This is probably the main news in the financial aspect of the summit.
So, all 26 EU member states, with the exception of Hungary, not only broadly agreed on the need to help Ukraine, but also agreed in detail that they would provide Ukraine with €50 billion, proportional to their contribution to the EU budget. What’s more, they agreed that this would happen regardless of Orbán’s consent.
It is also worth noting that the leaders of the member states have tasked the European Commission with developing a solution that would bypass the Hungarian veto in a way that would not strengthen the authoritarian leader. This was announced officially and publicly, although such tasks usually remain confidential. “We need to have a working plan in case a unanimous agreement is not possible at the summit on February 1,” said European Commission President Ursula von der Leyen in Brussels after the summit.
The Ukrainian Foreign Ministry also officially announced that the EU's decision to allocate 50 billion euros to Ukraine had been accepted in principle. At the same time, in unofficial conversations, government representatives confirm that discussions on the possibility of financing have been completed. The discussion is now focused on how exactly this decision will be formalized by the EU.
Dialogue with the Hungarian Prime Minister on this issue is also ongoing.
Arrangements
As already noted, the delay in European funding, which was supposed to begin in January to ensure Ukraine's macro-financial stability, will obviously not become critical.
Is it important for Kyiv to delay the decision until the February summit? The unequivocal answer is no. The government currently has sufficient reserves in the budget.
“We have already received $0.9 billion from the IMF, and the last tranche of macro-financial assistance from the EU, €1.5 billion, should arrive in the near future. In addition, funding is expected from Japan. If Ukraine receives this funding in full, the government will enter next year with a liquidity reserve of approximately $5 billion. This will be enough so that the delay in the first tranche of the Ukraine Facility by 1-1.5 months does not become critical. If necessary, the government will be able to delay part of the expenditures or temporarily use local budget funds accumulated in treasury accounts during the years of surplus,” explains Yuriy Gaidai, senior economist at the Center for Economic Strategy.
The main thing now is the confidence that a decision will be made in the near future. And such confidence exists.
It seems that the EU believes that the most likely scenario at the new summit will be that Orban can express his indignation, liven up the situation a bit, but still give the "green light" to financing Ukraine according to the standard procedure.
This is a beneficial option for Ukraine, as it will allow it to receive funds as quickly as possible – and this is an urgent need.
It is also important to note that this would be the most beneficial option for the EU, as it would avoid creating an unnecessary precedent of circumventing existing procedures, which is not always accepted in Brussels.
Additionally, it could be beneficial for Hungary, as avoiding a second bypass of its veto would help to avoid tension. Since the European Commission has been tasked with developing a legal mechanism to bypass a possible veto at the February 1 summit, it can be argued that all parties will be legally prepared for such a step.
