Why EU support to Ukraine once again hinges on Hungary #NewsMarket

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Good morning. A scoop to start: Greece’s prime minister has demanded Brussels take action to stop “extreme” electricity prices in a private letter to the European Commission president.

Today, our finance correspondent explains why diplomats are huddling this morning to convince Hungary to lift its latest veto on Ukraine aid, and our Rome bureau chief reports on Benito Mussolini’s granddaughter quitting the ruling party for being too extremist.

Have a great weekend.

Roadblocks

Hungarian Prime Minister Viktor Orbán once again holds the keys to EU foreign policy in his hands — as well as unlocking US and IMF aid to Ukraine, write Paola Tamma and Laura Dubois.

Context: G7 leaders in June agreed to collectively loan $50bn to Ukraine backed by future profits from Russian state assets frozen under western sanctions. The EU and the US are to provide $20bn each, with another $10bn split between the UK, Canada and Japan. But progress has been slow.

Washington has requested cast-iron guarantees that the Russian assets, most of which are held in the EU, would remain blocked until Russia pays reparations, in order to bypass congressional approval for its slice of the loan.

Currently, EU sanctions are rolled over every six months.

To appease the US, the European Commission will this morning present EU ambassadors with options to extend the sanctions period to 36 months, or extend them indefinitely, according to three EU officials. Any decision would require all 27 member states to agree.

“Thirty-six months remains the viable option . . . The Americans have been adamant that less than this is indigestible for them,” said an EU official.

But the Hungarian ambassador to the EU has already signalled that extending sanctions would be a question for leaders — which means additional leverage for the Hungarian premier, who has in the past vetoed aid to Ukraine. He could use it to influence Commission President Ursula von der Leyen’s distribution of portfolios in her new college.

Timing is crucial. The EU needs to adopt its loan proposals by the end of this year, or lose the ability to do so by a qualified majority vote — giving Hungary yet another opportunity for a veto. “Time pressure is there,” said an EU official.

The next tranche of the IMF’s loan to Ukraine is also linked to the package, as the IMF needs “firm assurances on sufficient financing to fill the financing gap for 12 months ahead”, a spokesperson said, before the disbursement expected in October.

One possible solution for the EU could be going ahead without the sanctions extension requested by the US — pledging an EU loan of “up to $40bn” — and hoping that Budapest agrees to it in the coming weeks, enabling the US to pick up its $20bn share of the loan later on, multiple EU officials said.

Some officials believe the US concern around the sanctions extension is overblown. “The sanctions are in place since 2014. We have always managed to renew them,” one EU official said.

For now, the keys remain in Orbán’s hands — just where he likes them.

Chart of the day: Slowdown

The European Central Bank yesterday cut interest rates to 3.5 per cent, responding to falling inflation and signs that the bloc’s economy risks grinding to a halt.

A family affair

Rachele Mussolini, the granddaughter of Italy’s former fascist leader, has been politically associated with Prime Minister Giorgia Meloni since 2016, when she won a seat on Rome’s city council on a ticket linked to the then far-right opposition leader.

But the Rome city council woman is now parting ways with Meloni’s Brothers of Italy to join the more traditionalist Forza Italia, the centre-right party founded by the late media baron Silvio Berlusconi, writes Amy Kazmin.

Context: Brothers of Italy is rooted in the neo-fascist Italian Social Movement started after the second world war by loyalists of Benito Mussolini, the Italian dictator who allied with Adolf Hitler and imposed anti-Jewish racial laws.

In recent years, Meloni has distanced her party from its neo-fascist origins, seeking to broaden its popular appeal to a wider swath of the Italian population, though the party — and its core supporters — still have extreme views on many social issues.

Rachele Mussolini, the younger daughter of Benito’s jazz piano-playing younger son Romano, told Italian news agency Ansa that it was “time to turn the page and join a party that I feel is closer to my moderate and centrist sensibilities”.

The city councillor, who describes herself as a “supporter of secular political thought, liberal and open-minded” on Instagram, told Italian journalists in May that she had a more “progressive idea” of family than the “Catholic fundamentalist” elements of Meloni’s party.

Mussolini said that while she supported the ideal of the “traditional family”, politicians “must take into account that society has changed”.

What to watch today

1. Informal meeting of EU finance ministers in Budapest.

2. Sweden’s foreign minister Maria Malmer Stenergard meets her Finnish colleague Elina Valtonen.

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