Ambiguous conditions on EU deal set to embolden Hungary and Poland

By Marton Dunai and Joanna Plucinska

BUDAPEST/WARSAW (Reuters) - The European Union's agreement on a coronavirus recovery fund is likely to embolden nationalist leaders in Poland and Hungary because it sets no mechanism for tying the disbursement of money to democratic norms.

EU leaders agreed a watered-down wording on conditionality in Brussels on Tuesday after Warsaw and Budapest resisted tougher language that would have put more constraints on them implementing policies that other EU states deem undemocratic.

Much will now depend on how quickly and firmly the EU - and particularly Germany - moves to agree on a mechanism that would force member states to uphold democratic values as a condition for receiving funding, political analysts said.

"We fought it out!" Hungarian Prime Minister Viktor Orban wrote on Facebook, portraying the outcome of the EU leaders' talks in Brussels as a triumph.

Polish Prime Minister Mateusz Morawiecki hailed a victory for Warsaw, telling reporters: "Poland cannot be deprived of a single euro."

Poland's ruling Law and Justice party (PiS) is now widely expected to press on with moves to tighten control of the media and courts without fears of an immediate financial backlash from Brussels.

Despite being at odds with the European Commission over reforms that the EU executive says have eroded the independence of Poland’s judiciary, Poland will be one of the biggest beneficiaries of EU funds.

Hungary has also increased its share of the 1.8 trillion euro ($2 trillion) deal, which includes a 750 billion euro recovery fund and a related 1.1 trillion euro 2021-2027 budget.

Orban's governing Fidesz party will feel its hands are not immediately tied to pursue populist anti-immigration campaigns that more liberal EU states say erode the rule of law, freedom of the press and minority rights.

The windfall should help strengthen the Polish and Hungarian economies, boosting their governments before parliamentary elections due in Hungary in 2022 and in Poland in 2023.

Orban has used a structure called the "System of National Cooperation" to direct public funds - including EU money - to a loyal elite that has helped him achieve his political goals.

"(EU money) will boost (Orban's) electoral chances," said Mujtaba Rahman of the Eurasia Group think tank.

In Poland, President Andrzej Duda's successful re-election campaign included a pledge to direct EU public funds towards infrastructure development.

PiS, to which Duda is allied, has made clear its intention to continue pursuing socially conservative policies. Gay marriages are illegal in Poland and Duda campaigned on a pledge not to allow adoptions by gay couples or permit classes on gay rights in state schools.

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Hungary and Poland, eastern European countries that until three decades ago were ruled by communists, had threatened to block any deal that specifically tied funding to upholding democratic norms.

With the chances of failure growing at the summit, EU leaders agreed to put off agreement on a mechanism for enforcing conditionality.

A watered-down summit resolution said the European Council of EU leaders "underlines the importance of the respect of the rule of law".

Language on giving broad rights to member states to report and start proceedings against "generalised deficiencies" of the rule of law was replaced by a more specific and narrower "conditionality to protect the budget."

Piotr Buras, director of the European Council on Foreign Relations think tank's Warsaw office, said it was now up to Germany, which holds the EU presidency for the rest of 2020, to deliver a new mechanism this year to enforce the rule of law.

The mechanism will be agreed by qualified majority rather than by a unanimous vote among EU states, making it harder for Poland or Hungary to block it.

"(These are) very unclear (summit) conclusions, both politically and legally," Buras said. "If there is a lack of this conditionality or the ... mechanism is very weak, then it will be a huge win for (Polish PiS leader Jaroslaw) Kaczynski, Morawiecki and Orban."

Warsaw and Budapest did not, however, achieve total victory, said Daniel Hegedus of the German Marshall Fund think tank.

The summit "did not agree on a specific rule of law conditionality mechanism... but Morawiecki and Orban's claim that they ward off the introduction of conditionality in the new budget is not in accordance with the facts," he told Reuters.

Eurasia Group's Rahman said: "At least in theory, funds can in the future now be blocked ... The odds of this happening, however, remain slight."

(Additional reporting by Reuters bureaux, Editing by Timothy Heritage)