Hungary: EU Commission wants to withhold EU funding

On November 30, the European Commission recommended to the EU Council that 7,5 billion euros of EU cohesion funds for Hungary should be frozen until the country has implemented substantial reforms to guarantee the rule of law. The EU Commission also approved Hungary’s recovery plan under conditions.

Efforts by Budapest in recent months to tackle corruption and improve the rule of law with the aim of appeasing Brussels were not sufficient to unblock the money, the commission declared in a statement.

“The direction is still the right one, but we are not yet at the goal,” EU Budget Commissioner Johannes Hahn said at a press conference.

The commission has long criticized widespread corruption in Hungary, as have other EU bodies like the European Parliament, but this is the first time it has threatened to cut funding.

17 measures to safeguard the EU budget

The official process of restricting funding began in April 2022, using new legislation implemented in 2021 – the so-called rule of law conditionality mechanism – aimed at ensuring that EU countries adhere to the bloc’s general principles as well as safeguarding the EU’s budget.

In September of this year, the commission announced its recommendation to freeze funding for Hungary while leaving the door open to retract in case 17 remedial measures were implemented by November 19 according to a plan agreed with Hungarian authorities.

“While a number of reforms have been undertaken or are underway, Hungary failed to adequately implement central aspects of the necessary 17 remedial measures,” the commission said in a press release.

The commission concluded that substantial steps were still needed to eliminate remaining risks to the EU budget in Hungary. There were, in particular, concerns that EU funds are not being used for their intended purpose due to corruption. The sums at stake are some 7.5 billion euros of the EU budget.

A fundamental principle for putting the law into effect is whether the commission believes EU funds are being misused.

27 milestones to hit for Covid recovery funds

The commission approved Budapest’s plan on how to spend the 5.8 billion euros in Covid-19 aid but stressed that no funds should be released to Hungary until all demanded reforms are fully implemented.

“The ‘essential milestones’ must all be met in full before Hungary can submit its payment request,” Executive Vice-President of the commission Valdis Dombrovskis said during a news conference.

“If they are not met, the entire payment would be blocked, and all subsequent ones too. In short: no funds will flow until the ‘essential milestones’ are properly implemented.”

There are 27 milestones for reform that Hungary must fulfill. Those include the measures already agreed with Budapest under the rule of law conditionality mechanism, as well as a new set of measures aimed at strengthening judicial independence.

The commission has taken a similar approach in the case of Poland, whose plan was adopted in the middle of the year.

Bulgaria is also adopting rule-of-law reforms, as part of the wider reforms wanted by the commission for the disbursement of the Covid recovery funds. The country will adopt new legislation to enhance the accountability of its Prosecutor General. The reforms are being prepared in coordination with the Venice Commission of the Council of Europe and are expected to be passed by June 2023.

Hungary is not surprised

The commission’s decision on Budapest’s Covid recovery plan “did not come as a big surprise,” Zoltán Kovács, a spokesperson for the Hungarian government, wrote on Twitter quoting Tibor Navracsics, the country’s minister for regional development.

“Hungary will deliver on the remaining commitments as accurately and thoroughly as it has done so far,” he added.

At the beginning of the week, Hungarian Minister Navracsics said he hoped the funds would be disbursed next year despite a recommendation by the commission to freeze funding.

Member States need to decide

The commission’s proposal still needs backing from enough EU countries. 15 of the 27 EU states, which together must make up at least 65 percent of the total population of the EU – a so-called qualified majority, need to approve withholding the funds of the EU budget. The EU countries have until December 19 to reach a decision on the commission’s proposal. Furthermore, if the EU Council does not approve the recovery plan by the end of the year, Hungary will lose 70 percent of the EU recovery funds.

 In their first reactions governments took a cautious approach.

The Slovenian Foreign Ministry told STA on November 30 that “the government wants to carefully examine the proposal and make a considered decision.” The ministry added, “in any case, a decision will be made in due time, before the EU Council decision.”

Austria’s minister in charge of EU Affairs, Karoline Edtstadler, told APA on November 30 that she still wants to take a close look at the commission’s assessment and talk to her Hungarian counterpart, while fully trusting the commission.

“The rule of law is the backbone of European democracy,” German Foreign Minister Annalena Baerbock said on the sidelines of a NATO foreign ministers meeting in Bucharest, adding that rule of law was also the basis for the bloc’s single market. 

Four member states could block the suspension

Four member countries representing more than 35 percent of the European population have veto power. In this regard, the position of Italy could become decisive.

“Freezing funds would be a barbarity. On the rule of law the European Commission is politically oriented” the EU parliamentarian Nicola Procaccini and member of the far-right-governing party “Brothers of Italy” said in an interview to the Italian newspaper Domani. “Sooner or later they will use this argument against Italy too,” he warned.

Last week Italy’s government coalition was split in a vote about Hungary in the EU Parliament. Italian Prime Minister GiorgiaMeloni‘s “Brothers of Italy” party and Deputy Premier Matteo Salvini’s right-wing League party voted against a resolution calling on the European Commission and Council to resist pressure from Hungary and go ahead with the measures. The delegation from ex-premier Silvio Berlusconi‘s conservative Forza Italia voted in favour, as did the parliamentarian majority.

High political stakes

Further developments are eagerly awaited, especially because Hungary has considerable means at its disposal to exert pressure on the EU. EU officials have indicated they were aware of the risk that Hungary might continue with blocking tactics on EU decisions requiring member state unanimity, a form of “blackmail” to try to ease the pressure from Brussels.

Budapest has already been standing in the way of efforts to extend sanctions on Moscow — with which it has good ties and is highly dependent on Russian energy — over Russia’s war in Ukraine.

It is also holding up EU adoption on a 15 percent corporate tax rate drawn up in the OECD.

Hungary denies that its obstructionism is linked to the tussle over rule of law. In this regard the Austrian minister said, “Hungary has shown itself to be quite cooperative in this ongoing procedure.” It is now up to the Czech EU presidency to come up with a proposal, she said. “There will certainly still be a lot of need for discussion,” Edtstadler added.

The Hungarian government has, however, blamed earlierthe dispute with Brussels for the fact that the country has yet to ratify the NATO membership of Finland and Sweden. The process is dragging on “because the parliament’s agenda is full of draft laws proposed by the European Commission,” Navracsics said.

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