European Union moves to cut funding to Hungary

The European Commission has proposed suspending €7.5 billion in funding from Hungary, around a third of its €22 bilion in cohesion funds. The move comes as the EU awaits potential “gamechanger” anti-corruption reforms from Budapest, after it suspected that prime minister Viktor Orban has undercut the rule of law and used EU money to enrich his friends. It’s the latest and most serious step in a series of worsening relations between the country and the bloc, although the signs are tentatively there that reforms in Hungary will follow.

The European Commission’s budget commissioner, Johannes Hahn, told a press conference on Sunday 18 September that the EU’s executive proposed suspending “the commitments for cohesion programmes and cohesion policy amounting to [an] estimated amount of €7.5bn”. According to French MEP Valérie Hayer, this was “the last chance” for Orban, and that “the time for discussions is over” in face of accusations that the money is used corruptly in Hungary. About 50% of public procurement contract awarded in the nation have only one bidder, to cite just one example of the processes worrying EU officials.

Orban has frequently criticised EU policies and proved a sticking point in negotiations

Hungary has long been at loggerheads with senior figures in the EU, but this step marks a further deterioration in the relationship. Orban has frequently criticised EU policies and has proven a sticking point in negotiations that require every member of the bloc to pass. In a recent symbolic vote, the European parliament declared that Hungary was no longer a “full democracy”, a move that has only increased the mutual distaste between the two sides. Coupled with a recent suggestion by Hungary that EU citizens should be polled about sanctions on Russia, with a view to withdrawing them, which has gone down poorly as the bloc seeks to maintain public unity.

This is a step up however, and a threat to the Hungarian economy from the EU if the country does not get its act together on corruption. In the face of a weakening local currency and fast-rising inflation, the potential withdrawal of EU money carries a serious message. Tibor Navracsics, a European affairs minister and a key ally of prime minister Viktor Orbán, told reporters on Sunday that 17 changes intended to improve transparency would be presented to the Hungarian parliament next week. He said: “The last thing the government wants is not to honour its commitments. The government is not out to mislead the commission, which expects obligations to be met. We will honour our commitments so there will be no lost funds.” Budapest plans to create an anti-corruption task force, broaden the scope and control of wealth declarations, and expand ways to prosecute crimes involving public funds.

This money is also uncertain and linked to an ongoing debate between the country and the EU

There has been a mixed reaction to the news. The German MEP Daniel Freund said that, although the freezing of funds to Hungary was welcome, he feared the proposed measures from Hungary were not enough to “stop Orban and his cronies from stealing EU funds”, particularly as the country will still receive a majority of EU funds. He added: “Those are good measures and they should be adopted but they are not sufficient to stop corruption, let alone to make Hungary a functioning democracy.”

Separate to this potential suspension is another application by Hungary for funds from the EU’s Covid-19 recovery fund. Hungary hopes to unlock an extra €7 billion of grants, and billions more in loans, but this money is also uncertain and linked to an ongoing debate between the country and the EU about the rule of law. EU officials have stressed that the Covid money is unrelated to the cohesion fund, but if the threat of withdrawal leads to major anti-corruption legislation, it’s not hard to imagine that similar pressure could be attached to this money.

Ultimately, this is not a battle that either side wants. As the bloc hopes to respond to the war in Ukraine and the cost-of-living crisis, it wants unity, and its countries are unlikely to want to have a serious confrontation with one of its own members. But Hungary cannot really afford to lose a massive chunk of money, and if it is hit hard, will serve as an example for other Eurosceptic countries (such as Poland and Bulgaria). Expect a compromise to be reached, because neither side really wants the fight to continue.