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Hungary has vowed to defy EU pressure to approve a four-year, €50bn aid package to Ukraine, condemning as “blackmail” a proposal to undermine its economy if it fails to back down.
Brussels has laid out ways to sabotage Hungary’s economy unless it agrees to drop its veto against the Ukraine funding plan at a special summit this week, in a confidential document seen by the Financial Times.
Hungary’s currency fell 0.7 per cent to Ft389 per euro and the benchmark 10-year bond yield rose 0.09 percentage points to 6.35 per cent, the highest level since December, in early Monday trading.
“Hungary does not give in to blackmail,” Hungary’s EU minister János Bóka wrote on X on Sunday night. “The document, drafted by Brussels bureaucrats, only confirms what the Hungarian Government has been saying for a long time: access to EU funds is used for political blackmailing.”
EU leaders will gather on Thursday to discuss a plan to use the bloc’s budget to provide Ukraine with crucial financial assistance necessary to continue its war effort against Russia’s full-scale invasion.
The emergency summit was called because Hungarian leader Viktor Orbán vetoed the package at a December summit. With US aid also held up in Congress, Ukraine’s finances are in a perilous state and it urgently needs the EU infusion.
The Brussels proposal sets out ways to exploit Hungary’s economic weaknesses, noting its high inflation and high cost of debt. The plan would rely on other EU leaders pledging to freeze all EU funding to Budapest in the event of Orbán’s veto, sparking a possible fall in investor confidence in the country.
Two EU diplomats told the FT that they were not convinced all other EU leaders would agree to do so. However, they said the proposal underscored the depth of anger at Orbán’s refusal to assist Ukraine, an EU candidate country, and the nadir of the Brussels-Budapest relationship.
On Monday an EU official sought downplay the significance of the proposal document, saying it was a “factual paper which does not reflect the status of the ongoing negotiations”, adding that it “does not outline a plan but makes a suggestion”.
“The document referred to in the Financial Times article is a background note written by the Secretariat of the council under its own responsibility which describes the current status of the Hungarian economy,” said the official, who requested anonymity.
Talks “are going and have always been based on funding a compromise acceptable to all 27 EU [member states]”, the official added.
The European Commission said it was not aware of the proposal.
Alongside the Ukraine funding stand-off, Hungary is also under intense pressure from its western allies in Nato to approve Sweden’s accession to the alliance. Budapest is the last member still blocking that process, despite promises to the contrary.
Last week the US accused Orbán of pursuing a “fantasy foreign policy” on the issues, saying Hungary was acting in the interests of Russian leader Vladimir Putin.
Orbán has repeatedly said he will not agree to amending the bloc’s common budget to allow for more aid to Ukraine, nor will he permit any more joint borrowing to raise the necessary funds.
Instead, he demanded member states finance a separate fund without new borrowing. The other 26 member states have resisted that idea.
Yet in an emergency proposal on Saturday, Budapest appeared to have softened its position, telling the FT it would accept modifying the EU budget and even joint new debt as long as it retained a right to review the package each year and block it if necessary.
However, that idea has already been declared unacceptable by other member states.
“Brussels is using blackmail against Hungary like there’s no tomorrow, despite the fact that we have proposed a compromise,” Balázs Orbán, the premier’s political director, wrote on X.
He added that the EU’s complaints about democratic backsliding in Hungary, and a resulting freeze on tens of billions of euros’ worth of funds, were being used to apply political pressure to force Budapest to comply with the bloc’s Ukraine policies.
“Now it’s crystal clear: this . . . has nothing to do with the rule of law. And now they’re not even trying to hide it,” Balázs Orbán said. “Whatever happens, change is needed in Brussels!”
The reaction in Hungarian markets could limit the central bank’s room for manoeuvre as it seeks to shore up its economy. The Hungarian National Bank is expected to cut interest rates by a full percentage point to 9.75 per cent at its policy meeting on Tuesday.
But analysts said rate-setters may be reluctant to add to the pressure on the forint given that currencies tend to weaken as borrowing costs fall.
“The uncertainty is negative for the forint and could be a factor limiting room for bold policy action by the Hungarian National Bank,” said Citigroup analyst Luis Costa, who added that the central bank may now opt for a smaller 0.75 percentage point cut this week.
Additional reporting by Roman Olearchyk in Kyiv