Despite their projected gains, Bulgaria and Romania stand shoulder-to-shoulder with Visegrad states and Croatia in rejecting efforts to tighten how and where EU money is spent.

Eastern states also object to a proposed new mechanism that would allow Brussels to “suspend, reduce or restrict access to EU funding” to countries found ignoring or violating the rule of law.

Introduced in the Commission’s first draft in 2018, the mechanism is seen as a reaction to the alleged flouting of core EU values by some eastern states in recent years — especially Hungary and Poland.

Poland digs in

Poland is the biggest beneficiary of EU funds. In the last long-term budget, EU money accounted for 2.4 per cent of Polish gross domestic product (GDP) and was widely credited with helping the country weather the economic crisis that hurt other nations.

Even with a 23 per cent decrease, Poland will still be the single biggest beneficiary, with 64.4 billion euros earmarked.

The reduction will mostly affect agriculture and cohesion funds as well as money for infrastructure projects.

Meanwhile, changes in cohesion funds for the bloc’s poorer regions will shift money away from central and eastern European countries and towards southern states, hitting Poland hard.

The shift is partly due to Brexit but it also reflects rising wealth levels in Central Europe plus the need for greater funds for research, defence and managing the migration crisis in Mediterranean countries, experts say.

But they add that Poland bears some responsibility for its budget cut given the deterioration of relations with Brussels since the ultranationalist Law and Justice party (PiS) took power in 2015.

Warsaw strongly opposes the changes. Last November, Poland and another 12 EU states signed a joint declaration in Bratislava demanding that cohesion and CAP funds not be cut.

At a meeting hosted by Warsaw in May, leaders of the 13 youngest EU member states signed the so-called Warsaw Declaration stressing the importance of their bloc and setting out demands for EU reform and the next budget.

Prime Minister Morawiecki said at the time that Poland was grateful for what it was getting from the EU but that “we are giving back at least as much through opening our markets, our talents, and even hard money in the form of dividends we pay”.

“We represent almost half of the countries in the EU and we are the locomotive of economic growth in Europe,” Morawiecki said, adding that former communist countries have higher economic growth rates than some of their Western European counterparts.

Since coming to power, PiS has stressed the need for the EU to become more balanced between East and West, blaming Western capitals of “colonialism” for twisting the rules of the game to suit their own interests while benefiting from the bloc’s enlargement,

Poland argues that eastern states should get the same financing levels in the next budget — if only because further economic development benefits net contributing countries too.

Warsaw says it is also a matter of showing solidarity across the EU.

But the solidarity argument is wearing thin given Poland’s refusal to help out with settling migrants and its violation or circumvention of key EU principles such as judicial independence, said Wojciech Przybylski, chairman of the Res Publica Foundation.

Similar behaviour from Hungary and other eastern states prompted the European Commission and European Parliament to try to put the rule of law at the heart of budget decisions — though the European Council has yet to agree to the new mechanism.

Since the decision can be made by so-called qualified majority voting, the mechanism could be introduced even in the face of opposition from Poland and Hungary.

“They will figure out some wording that can go through,” said Przybylski. “But where the problems with the rule of law will really show is in the willingness of net contributors to pump money into the EU budget after Britain is gone.

“Even Germany, traditionally a big defender of cohesion policy and a close economic partner of Poland, seems to have taken a step back.”

But Poland still has sway since the next EU budget has to be adopted unanimously, meaning Brussels need to find consensus.

Our government is not very popular in Brussels, so it has rather weak instruments to fight for more money. Credibility matters when it comes to convincing Western taxpayers to finance the newcomers.

– Janusz Lewandowski, Poland

According to Janusz Lewandowski, a former EU budget commissioner and current vice-chair of the European Parliament’s Committee for Budgets, the solution is to offer Poland extra money from a fund to help countries wean themselves off coal.

Lewandowski, a member of the Polish opposition party Civic Platform, said negotiations on this were almost finished, though it was not clear if new money would be found or if the funds would come from the already-shrinking cohesion pot.

“Our government is not very popular in Brussels, so it has rather weak instruments to fight for more money,” Lewandowki said. “Credibility matters when it comes to convincing Western taxpayers to finance the newcomers.”

Lewandowki told BIRN that proposed changes in the budget methodology were not accidental, but were made to convince taxpayers in Germany and Scandinavian countries to finance countries accused of playing fast and loose with core EU values.

Poland’s ruling populists won a second term in power in a general election last month and analysts do not expect PiS to reverse its hard line on judicial independence, migration and civil liberties.

Many in Brussels fear Warsaw might use any cut in funding to inflame anti-EU sentiment at home — so they are treading carefully, Lewandowki said.

“In the legislative proposal linking the budget to rule of law there is the stick — the rule of law conditionality — but there is also a carrot: we have proposed a special value instrument to allow us to finance via grants NGOs that promote European values and to do this without asking the respective governments,” he said.

“And there is a clear statement that the final beneficiaries should not suffer if funds are suspended for breaches in rule of law. If that happens, the governments are responsible for paying the money to beneficiaries anyway.”

‘Damocles Sword’

As Hungary braces for a cut of almost a quarter of its last budget allocation, the populist government of Prime Minister Viktor Orban is fighting for a better deal.

Hungary is one of the biggest beneficiaries of structural and cohesion funds, receiving 39 billion euros over the past seven years.

That could fall to 31 billion euros, while Hungary’s contribution to EU coffers could rise to 10 billion euros from 7.6 billion euros.

“The version submitted by the Commission is unacceptable; it needs to be modified,” Gergely Gulyas, Minister of the Prime Minister’s Office, said last month when asked by BIRN about the budget at a news conference.

“If the UK is leaving the EU, the EU budget will shrink by 12-13 per cent, and this is the maximum cut we could accept. Actually, we would be willing to increase our financial contribution, but it seems there is no consensus on this.”

Gulyas added: “The new budget cannot be disadvantageous to Central Europe. Although differences in living standards have been reduced in the last seven years, they are far from being washed away.

“We used our European funds in a very effective manner and kept a strict budgetary policy. Why should we be punished? We do not think that countries with a loose budgetary discipline should be rewarded.”

We used our European funds in a very effective manner and kept a strict budgetary policy. Why should we be punished?

– Gergely Gulyas, Hungary

Patrik Szicherle, an analyst at the Budapest-based Political Capital think tank, said a 12-13 per cent decrease in the overall EU budget sounded overly optimistic.

“A lot depends on the German position and whether the Hungarian government has Berlin’s goodwill,” Szicherle said. “If the Germans are willing to pay a bit more, than we can avoid a drastic 24 per cent cut.

“On the other hand, it has to be taken into consideration that some Hungarian regions have developed well, and left behind the poorest regions in Italy and Greece.”

Paradoxically, that means that Hungary — like most of Central Europe — will have to pay for economic success with sharp cuts.

Given its run-ins with Brussels over the rule of law, it is not surprising that Budapest also opposes linking EU funds to good behaviour.

But with the new conditionality mechanism likely to be passed by a qualified majority in the Council, Hungary appears to be stepping back from its previous “full rejection”.

“I do not think it is a totally irrational idea to introduce something like this,” Gulyas told BIRN, choosing his words carefully.

“But based on our experiences in the past few years, we are afraid it would be used for other purposes. We need guarantees that it is not going to be used to decide political debates.”

Gulyas was referring to the fallout from Hungary’s refusal to accept EU quotas for resettling migrants during the 2015 migrant and refugee crisis.

According to Szicherle, a bigger reduction in budget allocations is a real risk for the Hungarian economy, which is dependent on EU funds to the tune of two to four per cent of GDP.

“If the rule of law conditionality is accepted, the Commission can start a procedure which eventually may lead to the suspension of transfers,” he said.

“Even though the process would be a long and complicated one, it is going to be like a Damocles Sword over the head of the government and the oligarchs surrounding the party.”

‘Friend of cohesion’

Under populist Prime Minister Andrej Babis, the Czech Republic has adopted an increasingly eurosceptic position, moving closer to Poland and Hungary and defending them against attacks from Brussels over their alleged rule-of-law violations.

This has affected the Czech stance in budget negotiations too, with Prague joining other eastern countries in protesting the proposed cuts and pushing for greater control over how cohesion funds are used.

“The Czech Republic will definitely act as a ‘friend of cohesion’, promoting more money into cohesion policy,” said Vit Benes, an EU expert at Prague’s Metropolitan University.

In early November, the government hosted a “Friends of Cohesion Summit” in Prague, with participants reiterating the principles of the joint declaration signed in Bratislava last year.

Nevertheless, unlike most other eastern EU states, the Czech Republic seems reconciled to its own budget being slashed.

The European Commission’s proposed 24 per cent cut in the country’s fund allocation would see the country getting 17.8 billion euros between 2021 and 2027.

“We can work with it, even though it is one of the biggest downturns in all member states,” Milena Hrdinkova, state secretary for European affairs, said after a ministerial meeting in Brussels in September.

“But we need more power to decide where to put these funds.”

As in other eastern EU states, the issue of autonomy is a key one for the Czech government. Babis recently demanded that Brussels allow member states to decide the distribution of resources “according to their own priorities, without unnecessary administrative and other controls”.

The Czech Republic will definitely act as a ‘friend of cohesion’, promoting more money into cohesion policy.

– Vit Benes, Czech Republic

Babis has criticised previous governments for what he called their failure to properly use EU funds to improve the country’s infrastructure.

He has now turned to attacking the use of EU funds for “conferences and workshops” and demanding more spending on concrete things like motorways.

“Within the framework, a country can choose how to spend its money,” said Libor Roucek, a former Social Democrat Vice-President of the European Parliament.

“Czechs are just not capable of building motorways and fast trains. It is not the fault of the EU.”

Prague is also critical of plans to increase budget spending on foreign policy, defence and the EU border force, Frontex, because it sees this as moving towards a European “super state” and potentially damaging relations with the United States.

At the same time, the Czech Republic has criticised the EU for its handling of migration. The government says member states should deal with it themselves and that Frontex’s budget would be better spent funding Libyan and Egyptian coastguards.

The Czech Republic also opposes proposals to put a cap on what large-scale farmers can receive in agricultural subsidies.

The country has the biggest farms in the EU — a legacy of communist communal farms — including those run by the prime minister’s agro-chemical conglomerate, Agrofert.

Unlike Hungary and Poland, the Czech Republic is not against EU plans to make budget allocations dependent on the country’s attitudes towards issues like the rule of law, climate change and refugee quotas.

Experts say one reason is that Prague is in a delicate position since Vera Jourova, the Czech commissioner, has been given the “values and transparency” portfolio — even as Babis is under EU investigation over alleged conflicts of interest between his role as premier and his extensive businesses.

In September, state secretary of EU affairs Hrdinkova called for clearly defined conditions for assessing observance of the rule of law “to avoid any biased or priority treatment”.

Metropolitan University’s Benes said: “Czech political elites are ready to shield Hungary and Poland from criticism coming from any direction — be it EU institutions, member states or individual politicians — because they regard the criticism of human rights, rule of law and democratic principles as politically motivated interference in the internal affairs of a sovereign state.”

‘Trustworthy partner’

Neighbouring Slovakia has also been seen as an EU troublemaker in recent years, suing Brussels over migrant quotas and rejecting international conventions like the Istanbul Treaty on violence against women.

But when it comes to the EU budget negotiations, Bratislava is keen to present itself as a reliable ally.

“We want to clearly show that we belong to the tighter core of the EU,” Frantisek Ruzicka, state secretary at the Slovak foreign ministry, told BIRN.

“We want to demonstrate that we are trustworthy, predictable and easy to read as a partner. And we are ready to carry the responsibility if we break any rules as a member of the EU.”

We want to clearly show that we belong to the tighter core of the EU. We want to demonstrate that we are trustworthy, predictable and easy to read as a partner.

– Frantisek Ruzicka, Slovakia

Slovakia has voiced support for EU plans to fight climate change and has stood up for upholding the rule of law across the bloc.

While it faces a 23 per cent cut in funds, the country would see its own contribution rise by as much as 60 per cent in 2021-2017.

“Slovakia is a recipient of these funds and our interest is for that to continue,” Ruzicka said. “On the other hand, we realise that Slovakia has moved economically and that our contribution will be significantly higher than in the previous period.”

Slovakia’s priorities in the budget negotiations concern cohesion and agricultural funds. The country will also ask for more flexibility in how it allocates money.

When it comes to the tying funds to the rule of law, Slovakia says it is open to discussion and thinks the rules should be followed by everyone — including Western member states.

“I personally am a bit disturbed by the fact that we’re coming back to this issue after 15 years, that we have to spend so much time talking about the rule of law and that more or less, everybody has some problems with it,” Ruzicka said.

He added that Slovakia will support the strengthening of the control of the rule of law in EU countries, but “it has to be inclusive and it has to be applied to everyone”.

Walking on eggshells

With 27.2 billion euros earmarked for Romania in the draft budget — an eight per cent increase from the last MFF — Bucharest has less reason to complain than others.

Even so, it backs the efforts of other states to keep budget allocations from being slashed.

Romania has come in for its share of criticism for undermining the rule of law. The European Commission has threatened sanctions for the government’s weakening of anti-corruption laws and alleged attacks on judicial independence.

European affairs expert Dumitriu Opritoiu said Romania and other countries accused of flouting EU principles would struggle to invoke “cohesion” as a fundamental value to safeguard budgets for development and agriculture.

“Their arguments have been somewhat weakened by their rule-of-law slippage,” said Opritoiu, a project manager at Europuls, a Romanian non-profit that promotes EU integration.

Their arguments have been somewhat weakened by their rule-of-law slippage.

– Dumitriu Opritoiu, Romania

Bucharest has not stated its position on the Commission’s conditionality proposal but analysts say the government will likely oppose — or at least ignore — anything that could affect Romania’s budget allocations.

Romania’s credentials in Brussels — and possibly its influence —  have been undermined by the rejection of Rovana Plumb as EU commissioner on the grounds of conflict of interest.

Even so, as one of the bloc’s poorest states, Romania needs EU funds to keep developing and any withholding of money would ultimately trigger the EU’s fail-safe mechanism preventing “final beneficiaries” — ordinary people — being affected, Opritoiu said.

Like Romania, Bulgaria stands to see its allocation rise, with 8.9 billion euros earmarked in the draft budget — an eight per cent increase.

In the upcoming negotiations, analysts say Sofia will try to secure more cohesion and agriculture funds rather than investments in innovation and the environment, which the new European Commission is likely to push.

“Bulgaria reveals a significant need for catching up with the EU average performance in almost all spheres,” said Yasen Georgiev, executive director of the Economic Policy Institute in Sofia.

Bulgaria reveals a significant need for catching up with the EU average performance in almost all spheres.

– Yasen Georgiev, Bulgaria

Prime Minister Boyko Borissov has repeatedly stressed that the only way for Bulgaria to catch up with the rest of EU is to put more focus on its underdeveloped regions.

Nevertheless, experts say Bulgaria might still join the club of states opposed to linking fund allocation to the rule of law.

Georgiev said the new mechanism could affect Bulgaria as much as usual suspects like Hungary and Poland.

“The country is being continuously criticised for shortcomings in its judicial system and fight against corruption,” he said. “The progress in these fields is still being monitored by the EC within the Cooperation and Verification Mechanism.”

All top Bulgarian politicians have so far remained silent on the issue.

As the youngest EU state, Croatia is taking a careful approach to the budget negotiations, experts say.

The country is set to get 8.8 billion euros, a six percent decrease. But Zagreb will probably not object too loudly.

The Croatian Platform for International Citizen Solidarity (CROSOL), a Zagreb-based non-profit, said the government’s main political priority was to join the border-free Schengen area.

For that reason, “it is not likely that it will enter into a confrontation with any member state, in order not to be blocked in the process,” it said in a statement to BIRN.

“Therefore, we can expect quite neutral and diluted positions of Croatia in most topics, including in the area of the rule of law.”

As Croatia gears up for its first-ever EU presidency next year, officials will have their hands full steering the budget negotiations and dealing with other burning issues — leaving little room to forward the country’s own interests, experts say.

Since Croatia will moderate the meetings, it will have to listen to others rather than pushing its priorities. – CROSOL, Croatia

“Since Croatia moderates the meetings, it will have a task to listen to others rather than pushing its priorities,” CROSOL said.

While Croatia has declared support for the proposed rule-of-law conditionality, analysts say it has taken a soft line when Brussels has criticised eastern members for alleged breaches of these principles.

According to CROSOL, part of the reason is that Croatia’s own record of safeguarding democratic institutions is chequered.

“It is not to be expected that Croatia will take a clear and strong position that would go towards sanctioning member states for violating the rule of law,” it concluded.