No end in sight to Hungary stand-off

Good morning and welcome to Europe Express.

Hopes for an agreement on the sixth sanctions package against Russia ahead of next week’s EU summit are diminishing by the day. Hungary yesterday struck a defiant note via its justice minister, who was in Brussels to defend her country’s dismal rule of law record during disciplinary hearings that in theory could end up with the country’s voting rights being suspended. (But Budapest is shielded by Warsaw which is subject to the same article 7 procedure and which can veto any steps against its ally). We will explore how the oil embargo, the rule of law and the de facto suspension of EU funds are all tied up in a Gordian knot and what could loosen it up.

The other ministerial gathering, the eurogroup yesterday did make some headway in compiling a shortlist of names for the managing director of the eurozone bailout fund — a job that’s opening up when Klaus Regling retires in October. I’ll fill you in on the latest dynamics.

And with one pandemic ebbing while another outbreak is on the rise, I’ll bring you up to speed with concerns from the medical industry regarding a new regulation kicking in on Thursday.

Hungarian stalemate

The depth and breadth of the divisions between Hungary and its fellow EU member states were painfully apparent in meetings and public statements yesterday, write Sam Fleming and Valentina Pop in Brussels.

Budapest has been blocking progress of the EU’s oil ban since the beginning of May, and diplomats still discern little progress, predicting that the stand-off could end up being escalated to next week’s EU leaders’ summit in Brussels.

Justice minister Judit Varga struck a characteristically intransigent note yesterday, insisting that Hungary needs to see the European Commission’s “solutions” (for which read money) before Budapest signs up to any blockade of Russian oil.

At the same time, the dispute over rule of law standards between Brussels and Hungary remains as bitter as ever, as a meeting at the Council of the EU revealed. Ministers dealing with EU affairs held a hearing with Hungary over rule of law breaches, as part of the so-called Article 7 procedure started in 2018 by the European parliament.

Among the issues discussed were the independence of Hungary’s court system, its electoral system, corruption and conflicts of interest, freedom of expression and association and the law on the protection of children and its consequences on the LGBT+ community, according to EU justice commissioner Didier Reynders.

Parliamentary elections held last month revealed lingering issues pertaining to media ownership, the independence of the media regulator and the closure of independent outlets, Reynders said. He also flagged the use of spyware by Hungarian authorities on journalists and political opponents.

“I don’t have so many positive elements to say today,” Reynders said, with some understatement.

Czech’s EU minister Mikuláš Bek, who chaired the council at the request of France, said that his upcoming EU presidency would like to trigger “some review” of the rule of law process, working with the commission, as well as France and Sweden (which are the current and future presidencies).

An EU diplomat familiar with the discussions in the council noted that 18 countries intervened and asked questions, more than ever before in such hearings.

The separate release of the commission’s latest “semester” check-up on Hungary further underscored the problem. The commission’s country report found “no progress” by Budapest on implementing reforms previously proposed by Brussels in areas such as strengthening the fight against corruption, boosting judicial independence, or improving the transparency of decision-making.

Varga stood her ground in the council and rebuffed any criticism against her government’s policies, however. She pledged to tour EU capitals to explain why she considers the allegations against her country to be untrue, starting with Brussels.

And then there were three

The race to replace Klaus Regling at the helm of the European Stability Mechanism, the eurozone bailout fund, is entering a hot phase after finance ministers yesterday indicated their preference in two rounds of voting.

The Netherlands has withdrawn its candidate, meaning that of the initial four, three have stayed in the running. This is more than the initial aim of whittling them down to two. However, Europe Express understands that Italy may pull Marco Buti from the race if it gets a nod for other upcoming agency jobs (for instance, the yet-to-be-established anti-money laundering authority).

The field has de facto narrowed down to Portugal’s former finance minister João Leão (believed to have gathered most votes) and Luxembourg’s former finance minister Pierre Gramegna (a German favourite).

Given that the 19 countries’ votes are weighed by their capital allocation to the fund and the new managing director must gather 80 per cent of the votes cast, winning German support is crucial, as the country is the main contributor and therefore holds a blocking minority (Regling, who has chaired the ESM since its inception 10 years ago, is a German national).

Germany’s finance minister Christian Lindner, speaking on his way to the meeting, said: “We support candidates who guarantee that ESM will advocate monetary stability in the monetary union. So for us it’s not about passports, but about policies.”

The selection process now moves to the board of the ESM in Luxembourg, with eurogroup chief Paschal Donohoe saying that it aims to reach an agreement at the ESC board meeting on June 16.

“We have a fair bit of work to do, between now and June, which we’ll do,” Donohoe said.

Chart du jour: New old virus

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Read more here about what monkeypox is and why it is spreading across western Europe — mainly because smallpox vaccination, that was up to 85 per cent effective against this virus, as well, has stopped in the 1980s.

Test kit troubles

With the monkeypox outbreak forcing health authorities to dust off old test kits, and medical companies possibly looking at developing new ones, the medical industry’s trade association, MedTech Europe, is flagging an upcoming regulatory bottleneck.

As of Thursday, new in vitro diagnostic medical devices being developed and supplied to the market will be subject to stricter regulatory hurdles that could end up in products delayed for many months before hitting Europe’s pharmacies and testing laboratories.

This could prove particularly sensitive for new viruses or variants of — say Covid or the resurgent monkeypox — that would require entirely new test kits, said Oliver Bisazza, director-general for industrial policies at MedTech Europe.

“In order to get tests reviewed and certified we need infrastructure which hasn’t been yet put in place,” said Bisazza. He said the stricter rules resulted in Europe’s old certification bodies (over 20) needing to be recertified in a slow and cumbersome process that only seven bodies had managed to pass so far. One private Irish certification body, NSF Certification Ireland, in 2018 said publicly that it was withdrawing from the years-long re-certification process — a rare move for the otherwise quiet national bodies in the queue to be certified.

Acknowledging the looming backlogs, the commission in December said that application of the new rules would be staggered, so that already certified testing kits for highly-transmissible diseases including Covid or Aids would get more time, until 2025, to be recertified. But this will not apply to new products relating to new viruses or diseases, which will have to be approved by one of the seven overworked, backlogged certification bodies.

The European Commission did not immediately respond to a request for comment.

The new rules, adopted in 2017 in the form of an EU regulation, are aimed at improving the quality and safety checks carried out by national certification bodies, which themselves were to undergo more rigorous scrutiny before being able to operate. Prior to this, certification was carried out under a laxer EU directive, which led to uneven standards across the bloc.

What to watch today

1. EU finance ministers and, separately, agriculture ministers meet in Brussels

2. European Commission chief Ursula von der Leyen speaks at the World Economic Forum

Notable, Quotable

[The ECB is] likely to be in a position to exit negative interest rates by the end of the third quarter

• Rate increase: European Central Bank chief Christine Lagarde has signalled for the first time that the eight-year experiment with negative rates will end within months, saying borrowing costs are on track to hit zero by the end of September.

• French scandal: Emmanuel Macron’s newly minted government held its first meeting yesterday and had to grapple with sexual violence allegations levelled against one of its members.

• Davos rebranding: It’s not just the season that’s different in Davos this year, writes Gideon Rachman. There is also the rebranding of the Russia House, playing host to the country’s corporate and political elite, which is now the Russia War Crimes House — taken over by Ukrainians to highlight the appalling consequences of the invasion of their country.