Hungary vetoes EU aid for Ukraine, bloc delays decision on funds for Budapest

By Jan Strupczewski and Gabriela Baczynska

BRUSSELS (Reuters) -Hungary vetoed an 18 billion euro ($19 bln) loan to Ukraine from the European Union on Tuesday as its row with the bloc over undermining democracy rumbled on and the other 26 member states delayed a decision on releasing billions of aid to Budapest.

At an EU economics and finance ministers' meeting in Brussels, Hungarian minister Mihaly Varga confirmed his government's opposition to a loan for Ukraine financed by joint EU borrowing. Budapest has said it would provide bilateral help to Kyiv.

Varga's Lithuanian colleague, however, told Reuters ahead of the talks that it was "immoral" for Hungary to hold up EU aid for Ukraine. She said Hungary was using this as a bargaining chip to get other member states to agree to handing billions of euros from their joint EU budget to Budapest.

On Tuesday, the chairman of the ministerial meeting said Hungary's position would not stop the other members from aiding Ukraine.

"We will not be discouraged. Our ambition remains that we'll start the disbursement of our aid to Ukraine in January," said the Czech Republic's Finance Minister Zbynek Stanjura.

"This means we will be looking for a solution supported by 26 member states," without Hungary, he added.

Without Budapest's approval however, raising the funds is bound to be more complicated and could take longer.

Locked in a tug-of-war with Hungary, the ministers decided to take off Tuesday's agenda any decision about 7.5 billion euros in EU funds earmarked for Hungary.

The ministers had been supposed to vote on a recommendation last week by the bloc's executive European Commission to freeze the money, worth 65% of cohesion funds assigned to Hungary from the EU budget until the end of 2027, over corruption risks.

The ministers also delayed any decision on Budapest's spending plan for another 5.8 billion euros envisaged for Hungary from the bloc's economic stimulus fund, set up to help economies recover from the COVID pandemic.

Together, the funds add up to nearly 9 percent of Hungary's estimated 2022 GDP.

"Hungary considers it a dangerous precedent that the payment of EU funds to Hungary is linked to other, completely unrelated issues," Hungarian government spokesman Zoltan Kovacs said, adding that Budapest met all conditions to access EU money.

"We refuse to make EU funds conditional on changing our position," he said.

PRESSURE

Hungary is the only EU country that has not had its blueprint spending plan approved yet - a precondition to receiving the funds - with the Commission blocking access over damage to judicial independence in the ex-communist country.

Should the plan not be approved by the end of the year, EU law say 70% of the amount will be irrevocably lost. That has allowed Brussels to pile pressure on Prime Minister Viktor Orban who wants to secure the money for his ailing economy.

Over his 12 years in power, Orban has had regular, bitter fights with the EU over LGBT rights and the treatment of migrants in Hungary, where he has also tightened state controls over NGOs, academics, the courts and media.

International watchdogs say he has channelled EU funds to his inner circle over the years, entrenching himself in power. Orban denies Hungary is any more corrupt that other EU states.

Caught up in the EU's run-ins with Orban on Tuesday was also an OECD agreement to tax large international corporations a minimum of 15% where they operate.

All 27 member countries are needed for the EU as a whole to join the OECD plan, something Budapest has also blocked.

With distrust running high between Brussels and Budapest, the Commission was not sufficiently convinced by Orban's recent moves to set up a new anti-graft agency, among other steps meant to assuage EU concerns about the state of democracy in Hungary.

Germany was among those seeking more time on Tuesday, according to officials, saying the bloc might still endorse the Commission's proposal to hold back the funds later in December.

EU countries could also lower from 65% the amount to be frozen if Budapest convinces them it was making real progress, something a group of international democracy and rights groups including Transparency International warned against.

"The evidence of Hungary's rule-of-law decline has been exposed for years," they said in a joint letter this week, urging EU countries to ensure the funds were not misused to serve "elite interests and perpetuating rights violations".

($1 = 0.9510 euros)

(Reporting by Jan Strupczewski and Gabriela Baczynska, Editing by Raissa Kasolowsky, Alexandra Hudson)