EC backs withholding EUR 7.5bn from Hungary

The European Commission (EC) recommended the rescinding of 7.5 billion euros worth of cohesion funds from Hungary on Sunday, unless it enacts reforms that address rule of law issues in the country.

After weeks of intensive dialogue between the EC and officials from Prime Minister Viktor Orban’s government, Budget Commissioner Johannes Hahn called Hungary’s public procurement systems, judicial and prosecution “very problematic”.

The EUR 7.5bn figure represents 65% of the cohesion funds eligible to the cash-strapped country and 33% of all of the EU funds that Hungary could access before the end of the year.

Hahn listed the problems as Hungary’s systematic irregularities and deficiencies and weaknesses in public procurement, insufficiencies in addressing conflict of interest and concerns around public interest trusts, weaknesses in the pursuit of investigations and prosecutions in cases involving EU funds, and shortcomings in the country’s anti-corruption framework.

Noting that EC President Ursula von der Leyen had last week promised that the EC will protect its budget through the conditionality mechanism in her State of the Union address, Hahn said “we had an excellent discussion today and I can report that the College took an unanimous decision about the next step in the procedure concerning Hungary under the conditionality regulation.”

Unprecedented sanction now in hands of member states

The proposed budget protection measure represents the first instance of the EU considering financially sanctioning an EU member state over corruption issues.

The European Council, composed of the heads of state or government of the EU member states, will make the final decision on whether to withhold funds to Hungary. Council votes require the support of at least 55% of the EU-27, representing at least 65% of the bloc’s population. 

Although Council votes are usually passed within a month, the EC has proposed that no decision be made before 19 November, to give the Hungarian cabinet time to make sufficient reforms.

Political observers commented that Hungary may be able to count on support from Poland and Italy, the final verdict may depend on the votes of Germany and France.

Orban moves quickly to meet EC’s demands

Viktor Orban’s nationalist government immediately promised to vote through reform measures. Hungary’s Regional Development Minister Tibor Navracsics told local media later on Sunday that the cabinet will submit 17 bills to Parliament this week, as the EC has requested.

On Monday 19 September, the Orban cabinet will present amendments to increase transparency in public procurements procedures and address conflicts of interest regarding public interest organisations, including public universities.

On Friday a second legislative package will be presented to MPs that includes a bill on the Public Procurement Integrity Authority.

Navracsics underlined the importance of setting up an independent “integrity authority” to oversee EU-funding public procurements, with its leader to be chosen via an open application procedure, and said it could begin work by the second half of November. 

He said the EC had not suggested Hungary joining the European Prosecutor’s Office (EPO) in recent negotiations. Of the 27 EU member states, only five have yet to join the EPO, including Hungary and Poland.

Opposition split over whether Hungary will eventually access funds

Budapest’s opposition mayor Gergely Karacsony commented that Hungary now must choose between rule of law or severe austerity measures. “Accumulation of wealth for the ‘Meszaros people’ (referring to Orban’s inner circle) or procuring funds that Hungarians are eligible to: this is the dilemma the cabinet is facing”.

Leader of the right-wing Jobbik party Marton Gyongyosi noted that the EUR 7.5 billion at stake represents  Ft 315,000 (EUR 778) per capita. “This is how much is removed from every Hungarian’s pocket because of Orban’s theft,” he said.

However Momentum MEP Anna Donath expressed scepticism regarding the EC’s announcement, saying: “the real scandal is that the EU will ultimately transfer the money and the Fidesz government will carry on as before. The terms set by the EC can be fulfilled without seriously affecting the governing regime,” she added.

Last week the European Parliament adopted a report that classified Hungary as an “electoral autocracy” with 433 votes for, 123 against, and 28 abstentions. MEPs also chastised the EC for failing to take action against the decline of the rule of law in Hungary under Orban. This showed that the vast majority of European parties no longer consider Hungary a democracy, local outlet 444 wrote.