The European Commission proposes to suspend billions of euros of European subsidies to Hungary. Because there are insufficient guarantees in the country against corruption and fraud, the Commission wants to pay out a total of 7.5 billion euros less, European Commissioner Johannes Hahn (Budget) announced this Sunday. The move is an unprecedented step and marks a new phase in Brussels’ efforts to sanction the breakdown of the rule of law in Hungary.
With the proposal, Brussels considerably increases the pressure on Budapest, but at the same time it keeps the door open to avert the discount. If Hungary makes sufficient commitments in the coming weeks to prevent the misuse of EU funds, it can still avoid the sanction. In recent weeks, the Hungarian government has made frantic efforts to avert the punishment with a series of promises. Hahn this Sunday expressed himself “optimistic” about those commitments – a signal that negotiations with Budapest are still in full swing.
Rule of Law Test
Hungary is the first country to risk losing EU subsidies due to the lack of sufficient constitutional guarantees. Brussels has had this option since 2021, after EU countries agreed on such a so-called ‘rule of law test’ after difficult negotiations. It means that the Commission can cut a country down if there are well-founded concerns about the proper use of European money. For example, if corruption is not tackled sufficiently, or if public tenders are not transparent.
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That there are concerns about this in Hungary is not new: the European Commission and other Member States have been looking with frustration at the way EU money is spent in Hungary for years. Funds often disappear into the pockets of people closely associated with Prime Minister Viktor Orbán. There are no independent regulators and Hungary consistently refuses to cooperate with the European anti-corruption OLAF.
In addition, Hungary still refuses to participate in the new European Public Prosecutor’s Office, which can try fraud involving EU funds. The rule of law in Hungary is also under pressure in other areas: the European Parliament voted this week by a large majority in favor of the verdict that Hungary should no longer be considered a democracy.
New tool
After years of fruitless negotiations and reprimands, Brussels has a new tool to enforce measures. The effect of this has already been visible in recent months. This summer, as the Commission increased the pressure, Budapest suddenly appeared willing to pass new laws and set up bodies. On behalf of Hungary, Minister Judit Varga (Justice) traveled several times to Brussels, and to other EU capitals, for intensive negotiations. Hungary desperately needs EU funds: the economy is in bad shape and inflation is skyrocketing.
It led to a package of promises about strengthening financial supervision. For example, Hungary has pledged to set up a new and independent integrity authority, an ‘anti-corruption task force’ and a transparent electronic system for public procurement.
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game changer
They mean, emphasized European Commissioner Hahn on Sunday, a ‘game changer’ in the Hungarian position. “Financial pressure has an effect”, the Austrian European Commissioner confirmed when asked. The punishment cut presented on Sunday – 70 percent of Hungary’s cohesion funds – should keep that pressure high.
The commitments still need to be worked out in detail and, where necessary, enshrined in legislation. Hungary will have two months for this: on 19 November, the Commission will reassess the situation. Ultimately, it is then the EU Member States that must ratify the Commission’s intention.
The EUR 7.5 billion in cohesion funds is not the only money at stake for Hungary. The country is also the only EU member state that has still not received approval for its so-called ‘recovery plan’, with which it wants to claim money from the European corona fund. Budapest is in principle entitled to 7 billion euros, but for this too it must first provide guarantees under the rule of law.