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EU strikes deal with Hungary over Ukraine aid, tax plan and recovery funds

Monday’s (12 December) deal between the European Union and Hungary aims to provide financial assistance for Ukraine in 2023. It also grants Budapest approval for a global corporate minimum tax in return for EU flexibility regarding funds given to Hungary.

After months of negotiations between EU institutions, member states and Hungary, the complex deal was finally negotiated by the council representing EU member countries and anonymous diplomats. This means that Ukraine will receive €18 billion from the EU budget in next year.

Budapest was opposed to making payments through that predictable, predictable, and cheaper method, instead of by bilateral loans that member nations have extended to Kyiv.

It also accepted to let go of its veto over a OECD-agreed global corporate minimum tax of 15% that will be applied to large international corporations making money rather than to those who set up tax offices.

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One diplomat from the EU stated that the OECD minimum tax would now be EU law if Poland withdraws any objections to it by Wednesday.

Budapest has agreed to allow the EU to approve Hungary’s plan on how to spend €5.8 million of EU Recovery Funds. However, no money will flow until Budapest fulfills many conditions.

Because the EU approval was so important, Budapest would have lost 70% of its total if it hadn’t settled on the spending plan by the end.

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The EU governments also agreed that they would reduce the amount of EU funds for Hungary to €6.3bn from €7.5bn. This was in response to Budapest’s failure to respect the independence of the courts and high-level corruption.

To reduce the gap in living standards between richer and poorer members of the 27-nation bloc, Hungary will receive €6.3bn from the EU budget. The Commission requested that 65% of the money be frozen.

One EU diplomat stated that there was a deal. Hungary lifted its vetoes over the global minimum corporate tax, the €18bn for Ukraine, and the cohesion fund percentage to be frozen would be reduced to 55% of total. It will also get its recovery plan approved.

ECONOMY WOES

The total EU funds combined are worth more that 8% of Hungary’s 2022 GDP.

Viktor Orban, a veteran populist prime minister, needs resources to support his failing economy. With inflation rising to 26% and state debt increasing, the forint currency visible underperforming regional peers, and with inflation climbing to 26%, Viktor Orban is in desperate need of the resources.

The head of Hungarian central banking has issued an unusually direct warning about the economic precariousness. Citibank stated that Hungary was “entering another phase of market pressure”.

In recent months, Orban sought to make a deal to the EU and has amended domestic laws to address long-standing corruption concerns of the Commission.

However, Brussels was not convinced while other countries booed Orban’s vetoes for the EU’s common foreign policy.

One EU diplomat said that the rest of the world depends on Hungary.

Over the past decade, Orban has been in many disputes with the EU about compromising the principles of liberal democracy in Hungary by restricting the rights to the media, academics and judges, NGOs, immigrants, and LGBTI people.

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