Budapest is ready to retract its veto on a new package of EU aid to Ukraine if Brussels agrees to unblock all of the funds that have been frozen over concerns about Hungary's rule of law, Prime Minister Viktor Orbán’s political director Balazs Orban (unrelated) told Bloomberg on December 12.

He said Hungary’s position is unchanged on the start of accession talks with Ukraine. It wants to postpone a decision on the issue at the upcoming EU summit which begins on December 14.

Hungary argues Ukraine is not at all ready for membership and it has highlighted the country's restrictions on the use of minority languages, which affect its Hungarian minority. He has also expressed concerns about the potential costs of Ukraine's accession, both in terms of financial assistance and the burden on EU institutions.

The prime minister's aide said that if EU decision-makers insist that the €50bn financial aid to Ukraine is to come from the MFF [long-term EU budget] revision, then the European Commission should unblock all EU funding frozen for Hungary, not only the €10bn, for which Hungary looks set to receive the green light in the coming days as it is close to fulfilling the necessary judicial reforms, according to local media.

Orban's comments are significant as for long, government officials have rejected allegations that Hungary was using its position on Ukraine and the EU budget to gain leverage over the European Council to release EU funds, which have been frozen because of the Hungarian government's corruption and abuse of the rule of law.

"Our position on Ukraine, our position on the MFF revision, and many other issues would stand regardless of what is going on with the funds," government spokesperson Zoltan Kovacs had said earlier.

The EU funding for Ukraine is vital as the country desperately needs foreign assistance to keep its government running during its war with Russia. The key summit takes place as Republicans in the US Congress hold up US assistance. 

Balazs Orban also told Bloomberg that Hungary would consider supporting Ukraine if the financing was organised outside the EU budget, and Budapest would also chip in its share based on a bilateral agreement.

His comments  shed light on the behind-the-scenes negotiations in Brussels, indicating that the European Commission is working on a plan 'B' to circumvent Hungary’s veto on providing financial aid to the war-torn country on a bilateral basis. Diplomats said this arrangement is being worked out tacitly because the primary goal is  to reverse the Hungarian position. 

As one source explained to the news agency, setting up a financial instrument for Ukraine outside the EU budget is more time-consuming and costly in terms of interest than within it, and no one would want to go in that direction, but it would be irresponsible not to have a Plan B.

The haggling over breaking Hungary’s resistance over Ukraine comes as Brussels is expected to grant around half of the €22bn blocked cohesion funds to Hungary in the coming days as the country is on track to meet the remaining two key judicial milestones. Some €10bn is reported to be unfrozen, though Budapest will only receive €500mn immediately.

In May, the government introduced a number of legislative reforms to meet the requirements. It strengthened the National Judicial Council (NJC) while safeguarding its judicial independence. NJC is an independent body responsible for the appointment, promotion, and discipline of judges. Hungary has already adopted a regulation to amend the function of the Kuria and reform the election of its president, strengthening the court’s independence. Two key issues remain unresolved. Brussels wanted guarantees that there would be no human interference in the allocation of cases of the Kuria, Hungary’s supreme court.

A decree published in the official gazette last week ensured meeting that requirement. Another sticking point in the debate was that judges were not allowed to make a preliminary reference to the European Court of Justice before rulings.

The decree addressing these concerns has not yet been published. Once that is done, the Orban government could rightfully expect that money to be lifted, pro-government pundits opined.

The remaining €11.7bn of the cohesion funds remain frozen for different reasons: some €6.3bn is frozen under a mechanism to protect EU funds from corruption, while other money is held because of Hungary's treatment of asylum seekers, its anti-LGBT+ law, and concerns over academic freedom. 

Hungary is also seeking the unfreezing of  €10.4 billion (€6.5bn in grants and €3.9bn in cheap loans) from the EU’s post-pandemic recovery fund, but this requires the meeting of 27 supermilestones set by the EU. The EU announced last week that €0.9bn of these are so far being released.

The expected EU decision on the cohesion funds has sparked outrage in the European Parliament. “Politically, it’s a devastating signal,” Green MEP Daniel Freund told Politico. “Orbán is paralysing the EU and going against the EU’s core security interests.”

He said that Orban's threats “sound like he’s following orders from the Kremlin”. Since Russia launched its full-scale invasion of Ukraine, “Hungary’s Foreign Minister Péter Szijjártó has met [his Russian counterpart] Sergei Lavrov at least five times — that’s more bilateral meetings than with most of his EU counterparts,” Freund said.