The EU Must Stop Funding Illiberalism
Every seven years, the European Union allocates funds to help newer, less economically developed member states catch up to the bloc's richer countries. But now that these funds are being abused by the governments of Poland and Hungary, it is time to ensure that they come with strings attached.
BRUSSELS – Since 2004, when the European Union was enlarged to include many of the former communist states of Central and Eastern Europe, its regional funding mechanism has been heavily geared toward ameliorating economic inequalities between old and “new” member states. To ensure cohesion within the EU, overcoming disparities between countries and improving trade, transport, and communications infrastructure throughout the bloc have long been seen as critical.
The EU’s cohesion policy is in fact its most visible initiative. Investments made through the Cohesion Fund promote regional development, support innovation, improve education, and expand digitalization and transport networks, and sustain programs that improve the single market by boosting growth, productivity, and specialization. The cohesion policy benefits citizens, local communities, and businesses across the EU, but particularly in newer member states.
The Cohesion Fund’s next seven-year budget will run from 2020 to 2027, and the European Commission will offer proposals for how it should be allocated in early May. The negotiations over those proposals are expected to be fierce. For one thing, several new priorities have come to the fore in recent years, not least the need for stronger border protection, a system to manage migration, and more joint defense projects.
Complicating matters further, EU leaders hope to keep spending at current levels even after the United Kingdom’s withdrawal from the bloc next spring. And once spending priorities are agreed upon, the European Parliament will still have to approve the final budget.
But arguably the most important political development since the last budget negotiations in 2014 – more important than refugee inflows or Brexit – has been the emergence of illiberal, right-wing populist governments in Hungary and Poland. Under the 2014-2020 cohesion budget, which totaled over €350 billion ($424 billion), Poland and Hungary received €77 billion ($93 billion) and €22 billion ($26 billion), respectively, making them the largest and fourth-largest net beneficiaries of EU funds. And net budget contributors such as Germany, France, and the UK, it should be noted, heavily subsidize this largesse.
And yet, rather than embracing the values that have inspired such generosity, Poland and Hungary’s authoritarian-minded governments have been actively undermining the rule of law and dismantling their judicial systems. If either country were to apply for EU membership today, their bids would be rejected.
Both governments have cracked down on nongovernmental organizations and targeted or co-opted the media. Still, in what remains of Hungary’s free press, one can sometimes find credible reports alleging that Prime Minister Viktor Orbán and his cronies are pillaging EU funds to benefit themselves, their families, and their business associates. In fact, Orbán’s government has been the subject of a number of investigations by the European Anti-Fraud Office.
Despite such behavior, Orbán was re-elected earlier this month, and his Fidesz party, in alliance with the Christian Democrats, now holds a two-thirds parliamentary majority – enough to amend the constitution. During the election campaign, Orbán’s government saturated the country in xenophobic, anti-Semitic propaganda. According to election monitors from the Organization for Security and Cooperation in Europe, the vote “was characterized by a pervasive overlap between state and ruling party resources, undermining contestants’ ability to compete on an equal basis.”
Meanwhile, Poland’s ruling Law and Justice (PiS) party is currently under investigation by the European Commission for serial breaches of EU rule-of-law standards and infringements on judicial independence.
It is unacceptable that EU taxpayer money is being used to prop up the vanity projects of illiberal elites who show no compunction about undermining the democratic institutions that make the EU what it is. From 2020 onwards, it is critical that cohesion funds be disbursed on the condition that recipient member states uphold and enforce the rule of law.
To that end, the EU should introduce an objective procedure to monitor compliance and freeze funds when necessary. For example, if Article 7 of the Treaty on European Union is triggered against a member state for violations of the rule of law, all funds allocated to that country should be placed into a reserve fund. And until the Article 7 procedure is suspended or reversed, those funds should be redirected to support universities, research institutions, and other civil-society groups in that country.
This approach would demonstrate to the citizens of wayward countries that the EU does not want to punish them for their governments’ behavior. And it would give those governments a much stronger incentive to comply with EU rules and uphold the shared values that allow the single market to function properly.
The sad reality is that illiberal governments, such as those now in power in Poland and Hungary, are more than happy to take EU money while rejecting EU values. It is time to demonstrate that contempt for EU norms carries a price.
The EU’s Seven-Year Budget Itch
On February 23, EU members began negotiations on the bloc's multiannual financial framework for 2021-2027. But, with all countries focusing on net balances – how much they receive minus how much they pay – will the composition of spending bear any relation to the EU’s stated priorities?
PARIS – It’s theater season in the European Union. The play, called budget negotiations, is performed every seven years. It pits the EU’s spenders against its savers, donors against receivers, and reformers against conservatives. After the actors have exhausted themselves with bluffs, bullying, blackmail, and betrayal, everybody agrees on minimal changes. Each government claims victory and EU public spending is set in stone until the next performance.
Drama aside, however, watching the negotiation of the multiannual financial framework, as it is called, is a deeply depressing experience. All countries view it from the perspective of net balances – how much they receive, less how much they pay – without regard for the intrinsic value of spending. And, because wasting money at home is regarded as better than usefully spending it elsewhere, the composition of expenditures bears no relation to the EU’s stated priorities. In 2003, the Sapir report on Europe’s economic system called the EU budget a historical relic. Things haven’t improved much since then.
Theater season opened on February 23, when EU leaders held their first talks on the 2021-2027 framework. Optimists hope that it will end before the European Parliament election in June 2019. Realists expect it to last until the actors run out of time – that is, the end of 2020.
Seasoned European observers play down the significance of the show. They note that it is not primarily money, but regulatory policies – governing competition, subsidies, consumer protection, financial safety, or trade – that define the EU. Its budget represents about 2% of total public spending in the EU, and it has actually decreased over time, from 1.25% of GDP in the 1990s to about 1% in the current period. The US federal budget, by contrast, amounts to 20% of GDP. So why bother with a budget that remains small and misused? The EU has bigger problems to solve, critics say.
But this time, there are four reasons why the discussions matter, and why complacency would be misplaced.
The first is Brexit. Because the United Kingdom was a net contributor, it will leave a €15 billion ($18.5 billion) funding gap and force the EU to decide whether to substitute missing revenues or to cut spending. Adding to the drama, the misers’ bloc to which Britain belonged has fractured, with Germany indicating a willingness to be generous, while the Netherlands and Sweden are adamant they will not contribute a penny more.
Second, there is a growing gulf between money and politics. Poland’s net receipts from the EU amount to €10 billion annually, making it the leading beneficiary of the EU budget. But the Polish government’s priorities, and even values, are increasingly at odds with those of the EU. It opposes taking in asylum-seekers, it faces a European Commission-initiated procedure for threatening the independence of the judiciary, and it has shocked Europe with a law criminalizing allegations concerning Poles’ complicity in the Holocaust.
These actions have led German Chancellor Angela Merkel to suggest that conditionality be imposed for access to EU funds. This potentially explosive discussion can be avoided only if the EU is willing to shut up and pay, as some in Poland (and also in Hungary) demand. In that case, however, the EU would risk a different explosion. After all, for how long will citizens in the rest of Europe be willing to open their wallets only to be slapped in the face?
The third reason this theater season is so important is that Europe’s strategic environment calls for new priorities. From Ukraine to the Middle East, Libya, and the Sahel, the EU’s immediate neighborhood is either unstable or in turmoil. Meanwhile, the United States no longer provides the reliable shield to which Europeans had grown accustomed. The EU grew up in a world where it could safely concentrate on its own prosperity. That world is gone.
What we are facing is a redefinition of EU public goods, and this must entail deep budgetary consequences. The European Commission has bravely put some numbers on the table. It proposes to spend about €3-4 billion per year more on border security and a still-modest €5 billion per year on defense, as well as increases for research, innovation, and the Erasmus program. It also envisages annual spending cuts for regional aid and agriculture that could reach €30 billion.
Numbers, at this stage, merely flag issues. But the Commission’s boldness is justified. Regional policy and agriculture comprise nearly three-fourths of the EU budget, and both are questionable. Regional policy fueled eurozone booms in the pre-crisis years, but provided little help to struggling countries afterwards. And it is not granular enough to address the consequences of trade opening for local communities. The Common Agricultural Policy is increasingly ill-suited to guide the transformation of a much more diverse EU farm sector. To recalibrate them and thereby finance new priorities would be fully justified.
The last reason why budget issues matter this time around is that French President Emmanuel Macron has opened a new discussion about establishing a specific eurozone budget. The prime justification for creating one is not that certain public goods should be reserved to the EU’s eurozone members, but that a common fiscal instrument would cushion country-specific shocks and complement the European Central Bank’s monetary policy when facing common shocks. Whereas the EU budget performs no significant macroeconomic role in cross-country stabilization or in aggregate terms, as it does not record surpluses or deficits, the opposite would be expected from a eurozone budget.
There is no agreement yet on the contours of such a budget, especially as Germany is wary of creating a channel for cross-country transfers and joint borrowing. But this does not mean that the discussion has no future. If the EU27 prove unable to agree on sensible reforms of their budget, the eurozone’s 19 members (which include neither Poland nor Hungary) could gradually move toward creating their own. The EU budget would eventually morph into it, or become a small relic.
Understandably, citizens do not care much about the EU budget, especially if they do not directly benefit from it. But they do care about the new challenges Europe must confront, its ability to cope with them, and its willingness to devote resources to financing its priorities. The outcome of the budget discussion will tell Europeans what the EU is really up to. That is why this year’s theater season is not to be missed.
Europe’s New Appeasers
Hungarian Prime Minister Viktor Orbán has such a tight grip on power that Hungarians must depend on external pressure to stop the slide into authoritarianism. And yet even Germany, the only country that can exert significant influence, has failed to stop Orbán's latest attack on democracy.
WARSAW – Back in the 1990s, in the early days of Central Europe’s post-communist transition, Poland’s current de facto ruler Jarosław Kaczyński inelegantly exclaimed, “It’s our fucking turn” (Teraz kurwa my). More recently, Hungarian Prime Minister Viktor Orbán’s commissioner for culture, Imre Kerényi, himself a communist before 1989, said much the same thing: “It’s our turn.”
Polish Deputy Prime Minister and Minister for Culture Piotr Gliński has just removed the internationally renowned artist Jan Klata as director of Kraków’s Teatr Stary, one of Poland’s preeminent cultural institutions. In Klata’s place, he has installed Marek Mikos, a former theater critic with no experience managing a theater or directing plays. More than 80 directors, including such luminaries as Krzysztof Warlikowski, Krystian Lupa, and Mariusz Treliński, have already united to boycott working with the theater’s new leadership and, more broadly, to protest the government’s cultural policy.
In Hungary, the government has long had complete control over theaters and public universities. But it is now setting its sights on a private institution: Central European University.
On May 17, the European Parliament adopted a resolution criticizing legislation in Hungary that would force CEU to shut down. But that is scant comfort to Orbán’s critics, because the resolution does not sanction Orbán himself. By failing to impose effective penalties on countries that violate its laws and values, the European Union is merely exposing its impotence, and encouraging ever more egregious behavior from the likes of Orbán and Kaczyński.
Article 7 of the Treaty of Lisbon provides for the suspension of a rogue EU member state’s voting rights. But, because this “nuclear option” requires a unanimous vote by all EU member states, everyone knows that it will never be used. In fact, Article 7 is such an ineffective deterrent that it serves rule-breakers’ interests, by all but guaranteeing that they will not be punished.
Orbán has been scamming the EU for years and encouraging other populists to pursue their own authoritarian goals – and with EU funds to boot. But the weakening of the rule of law is not just a domestic matter in Hungary or Poland.
Because member states must recognize each other’s court judgments, the populist takeover of the Polish and Hungarian judiciaries undermines the entire EU’s legal order. Violations of democracy in Hungary and Poland are thus violations of European democracy itself. If there is no free press in Hungary, how can we even know if the country’s representatives in the European Parliament have been democratically elected and are acting in good faith?
The fact that we have to ask shows that the current mechanisms for defending liberal democracy are ineffective, and that sanctions will never enter into force. Ultimately, everything depends on individual member states’ political will.
There is no hope that Orbán and his Fidesz party will leave office anytime soon. Orbán, a much more capable politician than Kaczyński, has such a tight grip on power that Hungarians will have to wait for external pressure to be brought to bear. And yet even Germany, the only country that can exert significant influence, has failed to stop Orbán from shuttering CEU.
Four factors have so far played to Orbán’s advantage. The first is loyalty within the European People’s Party (EPP), a faction of center-right national political parties in the European Parliament. Though this connection has lost some importance, the fact is that, of 199 EPP members who voted, 107 voted opposed the May 17 resolution, and 40 abstained, leaving just 67 voting in favor.
The political winds in Europe are not blowing left. Indeed, the EPP retains a significant 27-seat advantage over the Socialist Party in the European Parliament. Why, then, does the EPP continue to act as Orban’s hostage?
Second, unlike Kaczynski’s Law and Justice Party (PiS), Fidesz has an even more extreme party to its right – Jobbik – which enjoys significant support. Orbán can keep Germany and others at bay by holding out the grim prospect of a Jobbik-led government coming to power in his stead. But this threat is quickly losing its salience, as Jobbik increasingly moves toward the center, while Fidesz drifts to the right.
Third, Orbán’s alliance with Horst Seehofer, the president of Germany’s Christian Social Union in Bavaria (CSU), affords him further political protection. Seehofer shares Orbán’s stance on refugees and treats Hungary much like Germany treats Turkey. “Today, Bavaria’s borders are being defended by Hungary,” Orbán said at a joint press conference with Seehofer in September 2015, before calling himself “the captain of one of the Bavarian minister-president’s border fortresses.” The EU pays Turkey in euros, while Seehofer pays Orbán by tolerating policies that no German politician should.
The fourth factor is, of course, German business interests. German companies make a lot of money in the so-called Visegrád Four – the Czech Republic, Hungary, Poland, and Slovakia – which together amount to Germany’s largest trade partner. But, here, the Hungarian tail is wagging the German dog.
On its own, Hungary is Germany’s 14th-largest trade partner in terms of both exports and imports. For comparison, Poland is Germany’s eighth-largest partner in exports and sixth in imports. But Germany is Hungary’s largest economic partner, accounting for more than 30% of exports and more than half of foreign direct investment. One of every three Hungarian jobs is created by a German company. In short, Germany could exert significant pressure on Hungary.
Continuing a policy of appeasement towards Orbán makes no sense. If CEU is forced to close, German Chancellor Angela Merkel’s government will bear considerable responsibility.
Rescuing Europe’s Illiberal Democracies
Brexit and the rise of xenophobic populism in many EU countries have exposed a strain of European politics that many complacently assumed had been eradicated three decades ago. To turn back illiberal forces, EU leaders need to muster a stronger defense of EU values, starting with the rule of law and good-faith engagement.
BRUSSELS – After 1989, the West, buoyed by political theorist Francis Fukuyama’s seductive notion of the “end of History,” entered an era of self-satisfied complacency in which it seemed that liberal democracy and capitalism could be taken for granted.
Three decades later, History is back with a vengeance. A populist nationalist is now president of the United States. The United Kingdom is withdrawing from the European Union. And self-proclaimed illiberal democrats are in power in Hungary and Poland. It turns out that, at the “end” of history, the enemies of open, democratic societies never actually surrendered. They were just pushed into the shadows.
There are a number of sociological reasons why illiberalism is resurgent today. Across the West, once-universal public spheres have been weakened and divided, and once-public social concerns have been “privatized.”
But the main reason for the West’s illiberal turn concerns emotions. For those who are unsettled by the widespread change of the past few decades, national identities have become increasingly appealing as a way to offset often-unpredictable globalization.
Populist rhetoric poses a direct challenge to the EU and its tradition of procedural and rules-based governance. Indeed, it strikes at the very core of the European project. There is no European counterpart to Trump’s promise to “Make America Great Again.” Given Europe’s twentieth-century history, such parochial sloganeering has been all but banished from the continent’s politics. Indeed, it is not well suited to the European timbre.
Yet the fact remains that Europeans are fighting for their very soul. To resist the populist backlash, we Europeans should be proclaiming the EU’s virtues more loudly, without descending to the populists’ level. Conjuring up some kind of EU-level nationalism to compete with state-level nationalism would be akin to taking medicine that is worse than the disease.
A better approach would focus on defending the rule of law against populist encroachments. The rule of law is the EU’s most valuable currency and a fundamental part of its DNA. It provides the foundation for the philosophy of multinational democracy that animates the EU’s institutions. While populists regard the rule of law as malleable or negotiable, Europe’s democrats understand that it is the essential bond holding our civilization together.
As Europe attempts to reverse the slide toward illiberalism, we must recognize that not all illiberal trajectories are the same. It seems counterproductive to put Hungary and Poland into one basket, and thereby drive them even further into an “alliance of the scorned” fueled more by convenience than real common interests.
The European project is about integration, not isolation. We should be careful about punishing countries simply because they happen to be led by irresponsible leaders at any given moment.
In fact, European integration must be about people, not political elites. Regardless of their governments’ stance, the majority of people in Poland and Hungary want to remain in the EU and participate actively in its continent-wide community. The EU is an expression of their values, and a mechanism by which they can realize their dreams. That means EU leaders have a responsibility, but also an opportunity, to turn back the illiberal tide.
If we are to draw in the countries with illiberal regimes, we could foster the active support of civil society, while using precise and calibrated instruments to put pressure on the governments in question. Blunt instruments will only make matters worse. For example, cutting off EU structural funds for regional development or other forms of assistance would punish the Polish and Hungarian people instead of their leaders, pushing them further away from the EU, and into the arms of their illiberal governments.
The challenge facing the EU today is to figure out how to reengage with its backsliding member states without punishing voters for their leaders’ misdeeds. It will not be easy. But if the EU is to implement needed institutional reforms, we need all the member countries to be fully engaged in seeking common solutions that make Europe more competitive, equitable, and socially robust. For those of us who believe in Europe, good-faith engagement is the only acceptable option.