Hungary breaks with the EU by seeking to turn Ukraine into ‘buffer zone’

Good morning. News to start: Brussels has opened a preliminary investigation into whether China provided unfair subsidies for a BYD electric car plant in Hungary, in a highly sensitive move targeting the deepening economic ties between Beijing and Budapest. 

Today, our Hungary correspondent reports on the country’s increasing defiance of EU unity, and our trade correspondent hears how Brussels will tackle sneaky carbon-importing schemes.

Emboldened

Hungary will again vote against the rest of the EU at a leaders’ summit today, as Budapest doubles down on its opposition to Kyiv’s rapid EU accession and sending it military aid, the country’s EU minister tells Marton Dunai.

Context: Hungary has swum against the EU mainstream on Ukraine, watering down sanctions on Russia and holding up billions in financing for Kyiv by arguing they “prolong the war” — echoing the Kremlin’s rhetoric.

In an interview with the FT, EU minister János Bóka acknowledged that Budapest was now taking a bolder line, arguing that Donald Trump’s return to the White House meant the bloc should no longer support Kyiv with arms or money.

“We do not see the security of Europe in the integration of Ukraine into defence systems, but we see the need for a buffer zone between Russia and European defence structures, which serves the interests of both Russia and Europe,” Bóka said.

“Ukraine can only function as a buffer zone if there is a consensus among global actors on what is possible and what is not possible on the territory of Ukraine,” he added, referring primarily to the US and Russia. “Otherwise, it will be a conflict zone, not a buffer zone.”

He warned that: “If either the US or the EU does something in Ukraine without [Vladimir] Putin’s approval, this in itself is a source of conflict.”

Diplomats from other EU countries acknowledged that Hungary’s “strategic divergence” from its allies appeared to be unbridgeable, and that informal discussions were taking place over ways to eliminate Budapest’s veto in unanimous decision-making.

“Continued opposition towards Ukraine sooner or later must have conclusions for the position of Hungary,” said one senior EU diplomat, adding that some EU foreign ministers discussed repercussions for Budapest at a meeting on Monday. “This debate has been launched.”

Hungary’s swagger is strengthened by Trump’s rapprochement with Moscow, which Bóka said was not only geopolitically motivated but also ideological.

“Many people make the mistake of underestimating the extent of the Trump administration’s dislike of European institutions,” Bóka said. “[Trump] sees the EU not just as an international body with opposing interests, but as a political opponent, and treats it accordingly.”

He also said Hungary’s “reservations” about the sanctions on Russia had “intensified”, as they in his view threaten to undermine the peace process.

“We do not want decisions on the sanctions regime to become an obstacle to the ceasefire and peace negotiations . . . We should be talking about the extent to which sanctions help or hinder this specific peace process,” Bóka said.

Chart du jour: Half-awake

Talk of Donald Trump bringing together Europe is premature, argues Janan Ganesh, observing a north-south split when it comes to defence spending.

Steeled

The EU is going to tighten its incoming carbon border tax to protect its steel industry and prevent foreign exporters from avoiding the charge through “resource shuffling”, the EU’s climate commissioner tells Andy Bounds.

Context: The so-called Carbon Border Adjustment Mechanism is in a pilot phase, and will start charging levies for the emissions from the production of products such as steel, cement and electricity.

Climate commissioner Wopke Hoekstra told the FT he would propose a revision to the rules to prevent companies from “sending their green steel to us and leaving the brown stuff at home”, a scheme that evades the charges and does not lead to overall decarbonisation.

At present, producers can circumvent CBAM by sending steel from their cleanest plants to Europe while continuing to build coal-fired blast furnaces and selling that output elsewhere.

Hoekstra said that under the proposed changes, the charges would be based on the average output of the exporting company. For “non-market economies” where the government can direct exports (such as China) it would reflect the national average, he said.

Hoekstra also said that some finished steel products would fall under CBAM, rather than just raw materials.

He also announced that, as part of the revision, additional support measures would be offered to EU exporters, whose steel and aluminium will be cleaner and therefore more expensive.

To ease the regulatory burden, the commissioner had already exempted around 90 per cent of EU companies that would have fallen under the mechanism.

Yesterday, the commission outlined an action plan to boost investment in greener steel production.

“Steel is here to stay and steel will decarbonise over the next few years,” Hoekstra said.

What to watch today

1. EU leaders’ summit.

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