EU leaders reach deal to end blockade on 1.8-tn-euro budget package

EU leaders have struck a deal to unblock the 1.8-trillion-euro (2.1-trillion-dollar) coronavirus financial recovery and long-term budget package, European Council President Charles Michel announced on Thursday, officially ending a weeks-long blockade by Poland and Hungary.

"Now we can start with the implementation and build back our economies," Michel tweeted during the Brussels summit, without disclosing the details of the agreement.

Warsaw and Budapest had been blocking the passage of the hotly-anticipated package - composed of a 2021-2027 spending plan and 750-billion-euro stimulus fund - in a dispute over a new mechanism tying access to EU funds to rule-of-law standards.

The new tool allows cash to be withheld if certain violations of basic standards, such as compromised judiciary independence, are deemed to threaten budgetary integrity.

Both capitals, which are the subject of growing concern over the erosion of core democratic standards and are facing multiple cases at the bloc's top court, protested that this was ideologically-fueled meddling in their domestic affairs.

The German EU presidency seemed to have thrashed out a compromise with Warsaw and Budapest on Wednesday, but it was not clear ahead of the summit whether all EU member states would accept it.

"We are just one inch from reaching a consensus," Hungarian Prime Minister Viktor Orban, who along with his Polish counterpart agreed to drop their vetoes, told reporters on his way into the talks.

The German-proposed compromise involved an additional statement of understanding on how the tool would work.

According to a draft of the declaration, no decision to withhold funds would be made until the European Court of Justice rules on the matter if a country decides to challenge the relevant regulation.

This essentially buys Warsaw and Budapest time and delays the moment by which funds could be withheld as ECJ court cases are often lengthy.

The additional declaration still needed a green light from the remaining 25 member states.

'Double victory'

Polish Prime Minister Mateusz Morawiecki called the compromise a "double victory."

"On one hand, the EU budget can start and Poland will receive 770 billion zloty (174 million euros) from it. On the other, these funds are safe because the mechanism of the conditions was limited by very precise criteria," Morawiecki said, adding that the agreement prevented the rules from being changed later against Poland's interests.

His comments were echoed by Hungarian Prime Minister Viktor Orban, whose spokesman Zoltan Kovacs tweeted, "We’ve won. In a difficult period of pandemic, economic crisis, there’s no time to continue political and ideological debates that prevent us from acting."

European Commission President Ursula von der Leyen tweeted her congratulations to the German presidency on Thursday after Michel announced the deal.

Ahead of the talks, Swedish Prime Minister Stefan Loefven had said that no substantive compromise on the text of the agreement had been made.

"But rather we've declared things that need to be declared," he told reporters in Brussels.

The long-term budget is supposed to be up and running for January 1, and the dispute had prompted arrangements for an emergency spending plan in recent days.

Emissions cuts

While they may have cleared the most difficult hurdle, EU leaders still face a host of difficult discussion topics before the summit's close on Friday, including whether to take up more ambitious emissions-cutting goals for 2030.

Early Friday morning, leaders were still wrestling over details of the agreement, with the Czech Republic and Poland voicing strong opposition to some of the provisions.

In foreign affairs, meanwhile, the EU states agreed to extend their economic sanctions targeting Russia for its role in the Ukraine conflict, Michel's spokesperson Barend Leyts announced on Twitter.

They also agreed that Turkey won't be hit with significantly tougher sanctions just yet, despite calls for a stricter line from member states Greece and Cyprus.

However, new names will be added to the sanctions list set up in November 2019 which targets companies involved in contested gas drilling activities in the eastern Mediterranean Sea, according to a joint statement signed off by the leaders.

It criticizes Ankara for engaging in further "unilateral and provocative activities" in the region as well as having "escalated its rhetoric against the EU."

The 27 states tasked EU foreign policy chief Josep Borrell and the European Commission with drawing up a report setting out options, including on widening the scope of existing sanctions.

Turkey's behaviour had not improved since leaders last held talks, EU foreign affairs chief Josep Borrell had said on his way into the talks. "We can even say that, from some points of view, things have been worsening," he added. "We have to deal with it."