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EU agrees to unlock €18bn Ukraine aid package as Hungary drops veto

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EU member states have agreed to unlock an €18bn funding package for Ukraine after Hungary dropped its veto as part of a wider political bargain giving Budapest the potential to access billions of euros of EU cash.

In a late-night deal struck by EU ambassadors on Monday, Hungary agreed to lift its blockade on an EU funding plan aimed at shoring up Kyiv’s finances in 2023. It also dropped its veto on the EU’s implementation of a minimum effective corporate tax in the union, EU diplomats said.

In return, EU member states will approve Hungary’s €5.8bn Covid-19 recovery plan, which has been held up since last year because of rule of law concerns, according to a statement by the Czech presidency of the EU. Failure to approve the plan by the end of the year would have deprived Budapest of most of those funds for good.

The deal represents a big step forward for capitals just days ahead of an EU summit that officials feared could be overshadowed by the messy stand-off with Hungary’s prime minister, Viktor Orbán.

Brussels has been particularly anxious about the perception that the EU has been failing to pull its financial weight when it comes to supporting Ukraine, with the US criticising the patchy and unpredictable stream of funding the union has managed this year.

The Ukraine funding programme proposed by the European Commission requires the unanimous consent from all the 27 member states because of the way the common borrowing will be raised by the EU. While member states discussed an alternative way of moving the funding to Ukraine, that would have taken longer to get through, deepening the financial hazards faced by Kyiv.

Hungary had been accused of blocking the loans as part of an effort to press other capitals to approve its share of the €800bn NextGenerationEU recovery programme.

Orbán has also been blocking the EU’s plans for setting a 15 per cent minimum effective corporate tax rate in the union, following the deal agreed under the auspices of the OECD last year. This plan also requires unanimous agreement of member states.

The Council of the EU said in a statement on Monday night that the member states had agreed to implement the levy, although diplomats said they still needed to iron out some remaining issues being raised by Poland.

Under the package agreed in principle by ambassadors, EU member states now plan to vote through Hungary’s recovery funding, which has been stuck since May last year when Budapest first lodged its application for the money.

The European Commission had recommended that EU nations approve the recovery plan, but member states last week delayed the decision because of the stand-off over Ukraine. Orbán has been under heavy pressure to come to terms with the EU and unlock the funding, given the travails of the Hungarian economy, which faces one of the highest inflation rates in the EU, alongside weak growth.

At the same time, member states agreed to freeze €6.3bn of cohesion funding to Hungary, after the commission found early this month that Budapest had fallen short in delivering on 17 commitments to reform the rule of law.

The amount of money being held back is slightly lower than the €7.5bn that the commission earlier proposed should be suspended. The rule of law reform requirements will be integrated into Hungary’s recovery plan, meaning that Budapest can only start accessing its cash once it has fulfilled all of the milestones.

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