The envelope, known as the Ukraine Facility, is meant to provide Kyiv with financial assistance between 2024 and 2027 to plug its ballooning public deficit, sustain essential services and pay for reconstruction efforts.

Under the original plan, the Facility was supposed to be already up and running, as Brussels has run out of financial aid for the war-torn nation.

But during a dramatic meeting of the European Council last month, Viktor Orbán waged his veto power to strike down the proposal, which is pegged to a wider review of the bloc’s common budget.

It stalled the EU’s support at a critical time, as Washington also struggled to overcome Republican opposition to approve a new package of military aid. The impasse on both sides of the Atlantic has put Kyiv in an increasingly precarious situation, with Russia stepping up its brutal barrage of air strikes.

However, there’s a glimmer of hope: EU leaders are set to convene again on 1 February to give the Facility a second chance. 

Hungary’s two demands

Ahead of the make-or-break date, Hungary has touted an idea to split the package into four annual envelopes, worth €12.5 billion each, according to diplomats with knowledge of the negotiations.

In practice, the divvy-up means that EU leaders would need to give their unanimous approval every year until the cash pot is exhausted. Doing so would run counter to the Facility’s aim to provide long-term, predictable assistance, as it would allow Orbán, or any other head of government, to block the aid as early as next year.

Hungary has also made an unrelated demand about the bloc’s COVID-19 recovery funds, the diplomatic sources said speaking on condition of anonymity.

Under current rules, member states have until the end of August 2026 to complete the milestones and targets necessary to access all the grants and loans they have been allocated. Otherwise, the money that remains unused will be lost.

Budapest is demanding an extra two years be added to this deadline, something that would require re-opening the extraordinary legislation that set up the recovery fund. The reason for this particular request lies in the fact that Hungary has been denied access to its national plan over rule-of-law concerns and could be left with a narrow timetable to spend the funds – if it ever manages to unblock them.

Hungary’s recovery and resilience plan is worth €10.4 billion, of which only €920 million have been released. Separately, the country has €11.5 billion in cohesion funds in the freezer due to a wide array of concerns over public procurement, conflicts of interests, academic freedom and LGBTQ+ rights.

Orbán has repeatedly denounced the situation as “financial blackmail” and his deputies have publicly said the more than €20 billion should be unfrozen – in their entirety – before a decision on the Ukraine Facility can be made.

The quid-pro-quo has intensified since December’s catastrophic summit, resulting in what one diplomat called a “very transactional” attitude, an undisguised “trade-off.”

Another diplomat noted that Hungary was “completely alone” on both the division of the Ukraine Facility and the two-year extension of the recovery funds. Germany was especially critical regarding this second demand.

Hope still alive

Nevertheless, the fact that Budapest is at least floating ideas, rather than inflexibly sticking to its veto, suggests the atmosphere has become more constructive, even if it remains fraught, and there might be limited space for a compromise of sorts.

Ambassadors approved on Wednesday a “partial negotiating mandate” to allow Belgium, the country that currently holds the EU Council’s rotating presidency, to start formal talks with the European Parliament as soon as a solution on the Facility is found.

The mandate, as the name says, is “partial” because it does not include the specific details of the special fund, namely the financial figures. These gaps can only be filled once leaders meet in February and discuss the topic vis-à-vis.

If the 27 member states fail – again – to achieve a breakthrough, Brussels will be forced to design an alternative scheme outside the EU budget with the buy-in of 26 countries only to keep money flowing to Kyiv.

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In a recent social media post, Orbán appeared to welcome the so-called Plan B.

“It’s good to see that the European Commission is preparing a plan B for the 1st of February, according to which financial support given to Ukraine could be managed outside the EU budget,” the Hungarian leader wrote. “This is a good decision! The Commission’s plan B is the Hungarian plan A!”