The EU Budget Commissioner warned Poland and Hungary that Brussels is ready to exclude them from the Recovery Fund and proceed with the project without them should they continue to block the approval of the 2021-27 European budget. Johannes Hahn said Warsaw and Budapest “cannot prevent us from helping our citizens” adding that Commission lawyers have identified possible ways around objections to EU spending plans. This intervention, in an interview with the Financial Times, puts pressure on the two countries that are blocking the €750 billion Recovery Fund and the EU’s annual budget. Both countries are opposed to applying the conditionality of the fund to the principles of the rule of law which, they say, unfairly targets their nations, a position that had already jeopardized last July’s EU spending agreement.

Poland’s deputy prime minister, Jaroslaw Gowin, a member of the moderate wing of the ruling coalition, said on Thursday that he believed there was still room for compromise. In this regard, Gowin added that an “interpretative declaration” could be prepared by the Commission’s Legal Service, but should be confirmed by the European Council. He said it would be necessary to make it clear that the principles of the rule of law would not be used to “put unjustified pressure on specific countries in matters other than the use of EU funds.” However, a Polish government spokesman said Warsaw would not change its position and that any rule of law mechanism should be “in accordance with the Treaties and conclusions of the European Council.”

The budget standoff is expected to dominate next week’s leaders’ summit in Brussels. Hahn said that the Commission’s objective is to reach an agreement with Warsaw and Budapest, but he also added: “We are fully aware of our responsibilities: that’s why we’ve already started on alternatives.” He said he was confident that if the EU were to go down the road of excluding the two Member States, the recovery fund could still proceed approximately along with the original timetable.

“We should discuss whether the EU should reduce the size of the Recovery Fund to take into account the absence of Poland and Hungary, or whether we should stick to the €750 billion originally agreed and distribute its proceeds to only 25 of the 27 members,” said a Commission official, stressing that this option would be based on EU law and would be orchestrated by the Commission rather than an intergovernmental treaty. “I think the message is starting to come that both countries will lose capital significantly next year and risk losing even more if they refuse to compromise,” Hahn said Thursday. According to estimates by the European Council, Poland and Hungary are both beneficiaries of the Recovery Fund, receiving subsidies equal to 3% of their gross domestic product. Should they continue to block the EU’s next multiannual financial framework, Brussels would be forced to move to a supplementary emergency budget for 2021, the first time since 1988, further affecting the two countries’ revenues.

The emergency budget would result in the loss of billions of euros for policies such as climate change, migration, and the Erasmus student exchange program. Brussels would not be able to provide funds for new cohesion projects, which would also have an impact on Poland and Hungary. “This applies in particular to those Member States that are the main beneficiaries and beneficiaries of cohesion funds,” Hahn said, urging priority to be given to the interests of citizens, “… otherwise we would end up in a disadvantageous situation for everyone… that is not in anyone’s interest.”