Orban won by a landslide, but Hungary’s economy is sliding too

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The Hungarian Ministry of Finance took the unusual step of issuing a public statement aimed at international investors on Friday. After Sunday’s celebrations, Hungarian Prime Minister Viktor Orban woke up to a grim domestic economic reality that includes a plummeting forint, rocketing prices and rule of law disputes that threaten Hungary’s EU funding.

In the aftermath of Orban’s election victory, President of the European Commission Ursula von der Leyen confirmed that the EU will send Hungary a formal letter to start the conditionality mechanism, which links rule of law concerns with EU funding payments. The formal notification that Brussels will send to the Orban government at the end of April will mainly highlight concerns regarding public procurement.

However in Friday’s open letter, entitled “General Information for Investors On Recent EU Developments Regarding Hungary”, the Hungarian Finance Ministry attempts to refute what it called “large number of articles and portals (reporting) that the EU would deprive Hungary from the EU funds in the coming period”.

Addressing the latter issue, the ministry wrote that the “possible activation of the rule-of-law mechanism have no bearing on the approval of the Hungarian recovery and resilience plan (RRP).” The Hungarian finance ministry underlined that “The foreseen initiation of the mechanism does not have any effect” on these negotiations.

“We are confident, if the procedure will be launched, finally Hungary will be able to address the findings of the Commission satisfactorily. The rule of law conditionality mechanism has not been initiated against Hungary,” it added.

Responding to the ministry’s missive, Green MEP and frequent Orban government critic Daniel Freund, tweeted that the government is arguing that there is no prospect that “funds to Hungary will be suspended, saying any EU measure would be proportionate to the rule of law breaches. I wouldn’t be so sure,” the MEP wrote.

However Freund noted that “It will take until January 2023 for the budget cuts to Hungary to materialize. Until then, Orbans 2/3rd majority government will keep receiving 500 million Euros every single month,” Freud added, before berating the EC’s lethargy towards Hungary.

University of Groningen Law Professor John Morijn questioned the ministry’s claim that the rule of law and RRP disputes were unrelated, but also noted on Twitter that any suspension of funds can in practise happen in September at the earliest, but more likely late this year or in early 2023.

This week it also emerged from Central Statistics Office data that Hungary is not receiving Russian gas at a vastly reduced rate, contrary to the words of Russian President Vladimir Putin during Orban’s visit to Moscow in February. When asked this week about Hungary seemingly paying market prices for gas, Orban said the primary goal is not to make the gas price cheaper but to always ensure supplies on a long-term basis. “All I can say is that this is a better price than it used to be,” Orban claimed.

The Hungarian forint slumped on von der Leyen’s comments that the EU will trigger the rule of law conditionality against Hungary, as investors offloaded shares of blue chips including OTP, Hungary’s largest commercial bank on Tuesday, Portfolio reported. By Thursday evening, HUF 382 were buying a euro, a three-week low, after the currency’s all-time trough of HUF 394 in early March.