EU still struggling to find solution to Hungary’s veto of Ukraine’s €90B lifeline

BRUSSELS ―The EU's insistence it can deliver a massive loan to Ukraine is slamming into hard reality: Hungary is showing no signs of ending its opposition and the European Commission is in a legal bind over what to do about it.

European leaders promised last December to send Ukraine €90 billion that it desperately needs to meet a funding shortfall in April. While Hungarian Prime Minister Viktor Orbán initially gave his consent, he's now changed his mind.

Under EU rules, all 27 governments must support the loan, which is to be financed by the EU borrowing money. Commission officials are discussing whether there's a way to get Ukraine the cash despite Hungary's dissent, but so far a clear answer hasn't emerged, four EU diplomats and officials told POLITICO.

“We will deliver on the loan one way or the other,” Commission President Ursula von der Leyen has said. “Let me be very clear, we have different options, and we will use them.” 

But contrary to some positive signals coming out of the Commission, no quick legal or procedural solution exists to sideline Hungary, an EU diplomat involved in the discussions told POLITICO. All the diplomats and officials quoted in this article were granted anonymity to speak about confidential EU plans.

Hungary isn't budging from its position and is still pushing for Ukraine to back down in a bitter feud over a broken pipeline transporting cheap Russian oil to Central Europe before it contemplates allowing the loan, a second senior European diplomat involved in the discussions told POLITICO. Even Ukrainian President Volodymyr Zelenskyy on Thursday seemed to accept that this might be the only option.

The EU is pinning its hopes on finding an answer in time for a meeting of EU leaders on March 19. An early draft of the summit's conclusions obtained by POLITICO, dated March 2, which has been worked on by national diplomats and will go through several revisions, says leaders “welcome” the agreement on the loan, and that they look "forward to the first disbursement to Ukraine by the beginning of April.”

The unanimity question

Orbán's intransigence, a month before he faces a general election in Hungary, is testing the EU's determination to move forward as a united group. That ambition shatters if one government consistently blocks things the other 26 want to do.

The Commission should "use all the tools we have in the treaty to overcome this, to avoid that everyone can blackmail the European Union," European Council President António Costa said. "And we have tools in the treaties." 

Legally sidestepping Hungary is not that simple however.

“It is impossible,” the first diplomat said. “Everybody thinks in terms of Article 7,” the clause in the EU’s treaty that allows the suspension of a member country’s voting rights ― in other words allowing the other 26 countries to plow on regardless. But “Article 7 would require the other members of the European Council to agree. And I don’t see [Slovak Prime Minister Robert] Fico nor [Czech Prime Minister Andrej] Babiš agreeing.” 

Another option would be a process known as "enhanced cooperation," which would require the use of qualified majority voting (QMV). This is something enshrined in the EU treaties that allows a smaller group of countries to agree on something between themselves.

But in this case it's legally tricky because some decisions connected with unblocking the loan seem to definitely need unanimity. "You have multiple instances where you can do enhanced cooperation with QMV but then something else requires unanimity," the diplomat said. "And they [Hungary] will block it.” 

Druzhba pipeline

If legal fixes aren't doable that leaves the Commission with trying to change Orbán's mind.

The only real option left is to send a fact-finding mission to the Druzhba pipeline, which transports oil from eastern Russia to Central Europe, two Commission officials said. But that is proving less than straightforward too.

The pipeline is at the heart of Hungary’s spat with Ukraine and its decision to block the loan as well as the EU’s 20th package of sanctions against Russia. Budapest has accused Kyiv of engineering an energy crisis in Hungary by refusing to turn on the Russian oil tap.

Hungary and Slovakia have both called for a team of European officials to inspect the pipeline, which has been offline since early January.

The Commission has endorsed the idea of a mission. Hungary had expressed “readiness to accept the findings of such a mission," Commission spokesperson Anna-Kaisa Itkonen said. "We consider this a welcome step.” 

But Kyiv has repeatedly said the pipeline is inoperable due to a Russian strike and cannot be easily repaired because of the danger of sending crews there to fix it. Satellite imagery is cited by both Ukraine and Hungary as confirming their positions.

For security reasons, organizing an in-person visit by a European delegation has proved difficult. That's not helped by Hungary and Slovakia, which have both courted close ties with Moscow, insisting they should be able to hand-pick delegates to join the mission in a sensitive area of Ukraine.

Still, it might be the only option to break the impasse, one of the Commission officials said.

The EU doesn’t have many other options, and Ukraine and its allies could undercut Hungary’s argument by letting the oil flow. If Kyiv wants the €90 billion, it essentially needs to suck it up, that official said.

Ukrainian President Volodymyr Zelenskyy seemed to accept as much on Thursday, telling reporters that Ukraine would — reluctantly — repair the pipeline if it meant unblocking the EU cash.

"To be honest, I would [rather] not restore it," Zelenskyy said. But "since the EU loan for Ukraine for €90 billion will be blocked without the restoration of the oil pipeline, the restoration of Druzhba is possible within a month and a half."

Bullishly confident

Brussels has been here before.

When the Commission came up with a plan to use confiscated Russian assets being kept in Europe to fund the financial support to Ukraine last year, von der Leyen was bullishly confident, saying that all EU countries would eventually get on board, or at least get out of the way. 

In the end, Belgium — home to the vast bulk of the frozen funds — killed the proposal over fears of legal and financial retaliation from Moscow, in an embarrassing rebuke to the Commission. 

Veronika Melkozerova contributed to this article from Kyiv.