• Tue. Sep 20th, 2022

European Commission proposes to cut Hungary’s funding by €7.5 billion – EURACTIV.com

ByChad J. Johnson

Sep 18, 2022

Citing concerns over corruption in Hungary, the European Commission proposed on Sunday (September 18th) to suspend a third of the cohesion funds allocated to the country if its reform efforts remain insufficient in the next two months.

At a meeting on Sunday morning, the EU executive proposed suspending €7.5 billion in EU funding for Budapest, around a third of the total amount of cohesion funds allocated to Hungary until 2027.

The suspension focuses on programs that are heavy on public procurement and therefore most vulnerable to corruption. Additionally, the Commission will require that EU programs like Horizon Europe do not commit any money to Hungarian public interest trusts.

“Today’s decision is a clear demonstration of the Commission’s determination to protect the EU budget and to use all the tools at our disposal to ensure this important objective”, said the European Budget Commissioner, Johannes Hahn, in a press release.

The conditionality mechanism shows its teeth

The Commission acted on the basis of the conditionality mechanism which has been part of the EU’s budgetary rules since January 2021. It allows the EU to suspend payments to member states in cases where breaches of state principles of law may affect the financial interests of the EU.

Worried about Hungary’s slide into autocracy under Prime Minister Viktor Orbán, the European Parliament has long pushed the Commission to trigger the conditionality mechanism, which the EU executive did in April.

It also informed the Hungarian government of its concerns, but in its response Budapest denied the allegations of corruption and offered no action to remedy the situation.

The Commission therefore sent another letter to the Hungarian government in July informing it of the measures it intended to propose.

“It seems to have concentrated the spirits in Budapest,” said an EU official.

Over the summer, the Hungarian government presented a package of 17 measures aimed at allaying the Commission’s concerns, for example, the creation of an independent “integrity authority” and a working group anti-corruption that would involve civil society.

Final decision in December

On paper, the commitments seemed to please the Commission.

“Corrective measures could, in principle, be able to solve the problems,” Commissioner Hahn told a press conference on Sunday.

“However, important details of the proposed measures still need to be determined and assessed,” he said, adding that the Commission’s assessment was “that a risk to the budget at this stage remains.”

An EU official explained that “we don’t take these commitments literally. Otherwise, we would not have made the decision we are making today”.

The Council of EU member state governments is expected to decide within a month whether it intends to follow the European Commission’s decision. However, the Commission has proposed to extend this deadline by two months to give the Hungarian government the possibility to implement its reform proposals.

The Council will therefore have to decide on the suspension of funds in three months at the latest. It can decide by qualified majority vote, requiring at least 15 member state governments representing at least 65% of the total EU population to agree.

Várhelyi supported the suspension proposal

During the press conference, Commissioner Hahn stressed that all commissioners had approved the decision. This means Hungarian Commissioner Olivér Várhelyi, who is believed to be close to Orbán, has not officially opposed the decision, a possible sign of growing EU pressure on the Orbán government.

Last Wednesday (14 September), Commission President Ursula von der Leyen said in her State of the European Union address that she would pay particular attention to the rule of law and the fight against corruption, saying that the Commission would “continue to insist on the independence of the judiciary”.

“We will also protect our budget through the conditionality mechanism,” she said, saying that “if we want to be credible when asking candidate countries to strengthen their democracies, we must also eradicate corruption at home.”

On Thursday, a large majority in the European Parliament adopted a report that Hungary could no longer be considered a democracy and that the lack of decisive EU action had contributed to the emergence of a “hybrid regime of ‘electoral autocracy’.

“Hungary is no longer a functioning democracy,” Green lawmaker Daniel Freund told parliament this week, saying all EU funds going to Hungary should be stopped, and “not just a little less”.

A game changer?

Assessing the Commission’s decision, an EU official stressed the importance of the new conditionality mechanism, which he called a “game changer”.

Whereas previously the EU could only intervene in individual cases on a very ad hoc basis, today “we are in the field of preventive actions, where it is possible to suspend very large volumes of funding because we have concerns about the nature of the systems,” the official said.

In a separate procedure running alongside the conditionality mechanism, the Commission is also negotiating with the Hungarian government for the disbursement of the EUR 5.8 billion that Hungary is expected to allocate under the Recovery and Resilience Fund of the EU.

If the EU and Hungary fail to reach an agreement by the end of the year, Budapest would lose its right to EU subsidies.

EU could be fooled by Orbán, experts say

As the European Commission negotiates with the Hungarian government over the disbursement of frozen EU recovery funds, local experts warn they may be trying to cheat the EU.

[Edited by Zoran Radosavljevic]