Why Russian oil and Ukraine spurred Spain to block a Hungarian M&A deal

Good morning. Today, my colleagues in Madrid and Brussels reveal the real reasons why Spain blocked a Hungarian attempt to buy one of its companies, and our finance correspondent explains why the EU is tempted to delay paying back its borrowed billions.

Whack a Mol

Madrid blocked a Hungarian company from buying Spanish train manufacturer Talgo over concerns that Budapest could disrupt exports of vital parts to Ukraine — and its links to Mol, the Hungarian energy company still refining Russian oil, write Barney Jopson, Andy Bounds and Marton Dunai.

Context: Madrid vetoed the takeover by Ganz-Mávag on public security grounds, one reason being that Ukraine’s reconstruction would need the kind of technology that Talgo boasts, a senior Spanish government official said.

According to the Spanish government, Ganz-Mávag is ultimately controlled by Mol. Several EU member states have been concerned about Mol’s links to Russia, six diplomats told the FT.

These concerns recently materialised into a co-ordinated boycott at a planned reception held for EU diplomats in Hungary, celebrating the beginning of its rotating EU presidency in July.

According to the official programme, the reception was to be held at Mol’s headquarters and hosted by chief executive Zsolt Hernádi. He is wanted in Croatia, after being sentenced to two and a half years in prison for bribing former Croatian prime minister Ivo Sanader.

“There was a joint message that many would not attend,” said one diplomat. “No one wants to be photographed with someone wanted in a member state,” said another.

Following the announced no-show, the reception’s host was changed to Zoltán Áldott, chair of Mol’s supervisory board. But even then, diplomats from a handful of member states including Spain, Germany, Lithuania and Estonia refused to go.

“Mol is still buying lots of Russian oil. There are ties with Moscow. In the context of the Ukraine war we didn’t want to attend,” said a third diplomat.

A senior official at Hungary’s permanent representation in Brussels said the event had been changed because Hernádi was “out of office”.

A spokesperson for Mol said that, at the event: “All EU member states were represented by delegations, except those with unsuitable logistical arrangements.”

Chart du jour: Shacking up

UniCredit’s amassing of a 9 per cent stake in Commerzbank as a prelude to a possible tie-up has fired the starting gun on the latest attempt to consolidate European banking. Regulators and politicians should, this time, allow the race to run its course, says Lex.

Keep rolling, rolling, rolling, rolling

The European Commission has a €30bn hole per year to fill in the next EU budget from repaying joint debt taken out during the Covid-19 pandemic — unless countries collectively decide to kick the can down the road, writes Paola Tamma.

Context: The EU took out joint debt for the first time in 2020 to finance the pandemic recovery. Now, up to €357bn in grants and an estimated €220bn in interest will need to be repaid between 2028 and 2058. Over the next budgetary term (2028-2034), that works out at €30bn a year.

EU leaders had originally agreed to repay it through new EU taxes, but have made no progress on the issue because of governments’ reluctance to grant Brussels revenue-raising powers — the ultimate hallmark of a sovereign entity.

The alternatives — slashing expenditure by an equivalent amount per year, or increasing nationally funded contributions — are also unlikely to receive unanimous backing. 

That leaves a clever but tricky option: restructure EU debt so as to delay repayment, potentially indefinitely. That would free up funds that could be used for much-needed EU investments, as suggested by former European Central Bank chief Mario Draghi in a report earlier this week.

It would also strengthen the EU’s presence on capital markets, which have shown an appetite for EU debt. “Everywhere we go huge investors worldwide [are] asking for more because they want to buy Europe,” said Stéphanie Riso, the bloc’s top budget civil servant, at a recent event.

But legal and political hurdles loom. The unprecedented issuance of debt was a one-off exercise — and was only sanctioned as such by EU leaders and the German constitutional court. Any attempt to issue further debt, or roll over existing, would probably be challenged in court. 

Even assuming a clever solution can be found, political will is also necessary. Richer countries such as Germany and the Netherlands will see this as a way of making EU debt permanent, which is anathema to them.

This only means the EU’s wider budget negotiations are shaping up to be even more fiery than expected.

What to watch today

1. US secretary of state Antony Blinken visits Poland.

2. ECB press conference follows rate-setting decision, at 2.45pm.

Now read these

• Rethink: EU foreign policy is in trouble, writes Steven Everts, and needs new ways of working and thinking about how it conceives of partnerships.

• Neighbourhood watch: Poland and Austria have criticised Germany for imposing border checks and called for other EU members to force a climbdown.

• Art attack: Christie’s chief executive has warned that Brexit is among the reasons why Europe is the only region where art sales are declining.