EU edges towards agreement on multi-year budget

BRUSSELS (Reuters) - The European Union edged towards finalising its next 1.8 trillion euro (1.6 trillion pounds) budget and COVID recovery package on Thursday after an agreement that countries breaching rule of law commitments risk losing EU funds.

Negotiators from the European Parliament and of the German presidency of the bloc struck a deal after weeks of talks on the budget that will run from 2021 to 2027, parliament and German representatives said on Thursday.

Finnish European lawmaker Petri Sarvamaa, who sits on the parliament's budget committee, called the agreement a milestone for protecting EU values.

"For the first time, we have established a mechanism that enables the EU to stop funding governments that disrespect our values such as the rule of law," he said in a statement.

Both the European Parliament and the European Council, the body representing the 27 EU countries, will have to approve the agreement.

Poland and Hungary are likely to voice opposition as they have been at loggerheads with the EU over backsliding on democratic standards. However, the Council can overcome them in a vote requiring only a qualified majority, not consensus.

In September, Hungary said a German proposal to tie future EU aid to rule of law conditions as "unacceptable". Budapest said it and Warsaw will set up a joint institute to assess the state of rule of law across EU member states so that they are "not taken for fools" over allegations of rule of law breaches.

(Reporting by Philip Blenkinsop)