Surely the EU was going to use its massive new COVID19/Budget negotiations to spank ill-behaved Hungary and Poland for their persistent rule-of-law failings? After all, surely you don’t get lots of EU money without sticking tightly to basic rules?

Seems not!

Hungary and Poland arguably emerge as the biggest winners. These governments, which are both being investigated by the EU for undermining independent judiciary, successfully fought against linking EU funds to the rule of law. EU leaders agreed that a proposal will be made another day.

Wait. How did that happen? How can huge beneficiaries of EU largesse somehow set terms for getting more largesse?

This is a case study in mega negotiation technique. EU budget decisions are some of the momentous and intricate negotiations of our times, as there are vast sums of money at stake and 27 national governments plus EU bureaucracies each greedily jostling for position.

As recently noted:

The absolutely fundamental basic foundational point here is that an EU member state has no real decision-making power by belonging to the Qualified Majority. The real power both with QMV and unanimity lies in the power to block a decision. 

If you (with other blockers as necessary to form a QMV blocking minority) can stop a decision, then either that decision doesn’t happen or the wannabe QMV side will throw you a fat bribe to win your acquiescence. The debate then boils down to how guileful/determined you are at increasing the size of the bribe, and what other devious ways can be found by the wannabe QMV side to hurt you if you don’t accept it.

But as this latest Summit shows, it’s not only about the formal power to block. Here on Budget issues every member state can block.

It’s about being willing and tough enough to block, if necessary in a minority of one and (perhaps) risk crashing the whole wobbly EU edifice. This in turn requires formidable nerves and bluffing guile. And a steely focus on what’s important and what matters, both for you and for everyone else.

So as the result shows, in this sense it was easy for Poland and Hungary to tip-toe through the battlefield and emerge unscathed:

But what matters for the EU as a whole is to keep the EU staggering on and get that vast COVID19 financial package agreed, rather than waste time and energy in what is necessarily a doomed effort to bring the block-wielding naughty children to heel.

With the COVID19 policy debacle doing horrible things to European economic performance this year, the agreed priority was to find a way to inject more money into the ‘European economy’. Member states won’t and can’t pay lots more money into the central EU Pot, the more so as the UK has left the fold. So, where to find the swag?

Answer? Borrow it.

But if the EU as a whole borrows money, then the EU as a whole has to guarantee the loans and then repay them? Doesn’t that put the well-run member states’ economies on the hook for stupidity/profligacy among incompetent or faltering EU member states? In other words, hard-working German taxpayers are the suckers of last resort who’ll be committed to bail out feckless Greeks and Italians? Isn’t that BAD, creating all sorts of messy moral hazard problems? Yes!

“Hang on …” says the European Commission. “Maybe there’s another way. Why not allow the EU at EU level to raise its ‘own resources’ by imposing taxes on the EU space? Then no one member state’s taxpayers are the suckers of last resort. ALL EU taxpayers are the suckers of last resort! What can be fairer than that? Plus, you national leaders can all piously claim back home that you’ve been resolute and limited your national contributions to the common Pot. Frugality all round!”

“But … but …” splutter the member states, “We’ve held the line against just that for decades. Once the EU starts raising its own taxes, power irrevocably slips away from the national level to the EU level! We’ll be nothing but glorified county councils!”

“You make a solid point,” sighs the Commission. “But look at it this way. The whole thing is an urgent mess. We can’t dither. Our proposal spreads the load across the EU. It is kinder to your hard-pressed national budgets. We can use these new taxes to kick those nasty US tech giants where it hurts and/or manipulate markets to impose Green climate incentives: what’s not to like about that? And, after all, what’s the alternative? Do any of you really want to bring down the house of cards over these rather technical new taxes that in the great scheme of European money are almost negligible?”

The member states slink off to their rooms to ponder.

Poland and Hungary are happy: if they support this, they can brush away nagging about rule-of-law issues. Plus they get loads more EU money they haven’t earned. Big win!

Germany and France can live with it. As the biggest post-Brexit EU Bigs and largest net contributors to the Pot, they reckon they can exert enough control on the Commission to stop it getting out of control. How else to stop Italy crashing out of the Eurozone? Brexit was bad. Italexit would be fatal.

Italy is pleased. It shows that it can blackmail the EU into giving it a load of new money in ‘EU grants’ – that fends off the domestic Italexit tendency for a while.

Austria, Netherlands, Denmark, Finland and Sweden are aghast. These ‘frugals’ are caught in the middle between the EU Bigs and Smalls. They’re rich and self-disciplined enough to be net contributors, but not big enough to bully their way to controlling the Eurozone’s innermost machinations and limiting southern EU profligacy. For all this talk of the EU raising its own taxes, member states are ultimately responsible for paying back EU-level debts: are they now being set up as leading suckers of last resort to bail out millions of idle tax-avoiding wine-swilling Greeks and Italians?

The EU sidles in. “Look. We know that you’re aghast at this. And quite rightly. But how’s about this? Remember that EU budget rebate the cunning Brits had? The gift that keeps on giving? What if we give each of you a juicy rebate? You can proclaim that as a massive victory to your taxpayers! And you will indeed pay ‘less’, depending on how the numbers are spun! The bottom line here is simple. Everyone else can accept this outcome. And, let’s be honest. With this crafty rebate bung, you can accept it too…”

Thus this Horrible Deal. For the first time EU member states and their hapless taxpayers accept EU-level taxation without meaningful democratic representation.

What can go wrong?