Hungary blocking Russia sanctions package over €16B in EU defense loans, diplomats say

BRUSSELS — Hungary is holding up the EU’s latest set of sanctions on Russia to pressure the European Commission into approving its application for a €16 billion defense loan, according to two EU diplomats.

Budapest is locked in a major standoff with Brussels over aid to Ukraine, after Prime Minister Viktor Orbán on Friday threatened to veto the bloc’s 20th sanctions package against Moscow as well as a €90 billion loan to Kyiv, until Ukraine resumes oil flows via a pipeline that Kyiv says was damaged in a Russian attack.

While EU officials are hopeful that a pledge to fix the pipeline will persuade Orbán to drop his veto on the loan, two EU diplomats directly aware of the discussions, granted anonymity to speak freely about the sensitive negotiations, said Budapest may continue to block the sanctions until its defense loan application is approved.

The Commission proposed the new sanctions package, which broadens restrictions on Russian energy, banks, goods and services, on Feb. 6. The EU had hoped to get final approval on both measures — the sanctions package, which requires unanimity to pass, and the €90 billion loan — before this past Tuesday, the fourth anniversary of Moscow’s full-scale invasion of Ukraine.

With Kyiv set to run out of cash in April, the same month Hungarians head to the polls for a national election, EU leaders are scrambling for ways to get Budapest to drop its opposition while avoiding a legal blowup with Orbán that could feed into his reelection campaign.

Hungary has applied for €16 billion through the EU’s SAFE program, which provides cheap money to EU countries buying weapons in bulk to boost the bloc’s defenses against Russian aggression.

The Commission has yet to approve Hungary’s application, and is “slow-walking” an initial payment of €2.4 billion in the hope of applying pressure to Budapest, officials told POLITICO earlier this week. The Commission denied it has blocked Budapest’s application.

The Commission should finalize its review of Hungary’s SAFE loan application to avoid any perception that it’s being held up for political reasons, the two diplomats said. It would still be up to national capitals to give final approval to disbursing the defense cash.

A spokesperson for Hungary’s permanent representation in Brussels didn’t immediately reply to a request for comment.

The Commission has already withheld €17 billion in regional development and post-pandemic recovery funds earmarked for Hungary over rule-of-law concerns.