Hungary faces freeze in EU funding

Hungary faces potential delays to EU payments worth up to €13.3bn after Brussels accused the central European country of failing to live up to its pledges to tackle corruption.

The European Commission said on Wednesday it was recommending a freeze in €7.5bn cohesion payments after concluding that Budapest fell short in delivering 17 commitments to reform the rule of law it pledged in September.

Brussels separately endorsed Hungary’s long-delayed Covid-19 recovery plan, worth €5.8bn, but insisted that no disbursements should be made until Budapest delivered on a swath of reforms.

The commission’s stance dealt a blow to Prime Minister Viktor Orbán, who is anxious to unlock EU funding as Hungary’s currency, the forint, tumbles amid a budget shortfall of more than 6 per cent of gross domestic product this year.

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Budapest has locked horns with the EU for years over concerns about its record on the rule of law, which critics, including a majority in the European parliament, have said threatens the fair and transparent distribution of EU taxpayer money.

“As a whole, there is a continued risk to the EU budget because of remaining gaps in . . . the reforms,” said EU budget commissioner Johannes Hahn, while acknowledging that Hungary had made some steps in the right direction.

The commission in April warned Hungary of rule of law breaches that endangered the country’s access to the EU budget as it kicked off a process under its new rule of law conditionality mechanism that could lead to the withholding of funds.

While Orbán proposed the 17 anti-corruption reforms to ward off the threat of cash being frozen, the commission on Wednesday said it had found shortcomings in what Budapest had delivered. These related to the effectiveness of a newly established Integrity Authority in Hungary and procedures for judicial review of prosecutorial decisions.

Despite rule of law breaches, the commission endorsed Hungary’s recovery and resilience plan, worth €5.8bn, on Wednesday, finding it to be a “comprehensive and adequately balanced response” to the country’s economic and social situation.

However the commission said Hungary would receive no payments under its pandemic recovery facility until 27 so-called super-milestones relating to rule of law and judicial independence were fully met. “No funds will flow until the ‘essential milestones’ are properly implemented,” said Valdis Dombrovskis, executive vice-president at the commission.

Hungary said it welcomed the commission’s proposal to approve its pandemic recovery plan, which its EU minister Tibor Navracsics described as a “significant step forward”.

Navracsics said he expected the rule of law conditions to be fulfilled and expected that all of the funds would be released next year. “We made compromises that have not required us to give up our principles,” he said. “We don’t want to beat around the bush, we’ll do what we undertook, which is the key to our accessing all of the funds in 2023.”

It now falls to the Council of the EU to decide whether to uphold the commission’s recommendations. The decision to freeze cohesion funding payments under the rule of law conditionality mechanism will require a qualified majority vote, potentially in an exceptional meeting of EU finance ministers in mid-December.

The council of ministers also needs to sign off on the commission’s decision to approve the recovery fund.

The funding stand-off raises the risk that Hungary will seek to block other crucial EU decisions as it attempts to get its way over EU funding.

Member states are watching to see if Budapest blocks a proposed €18bn loan programme for Ukraine in December, as well as continuing to veto the implementation of a minimum corporate tax in the EU.

Navracsics insisted that Hungary would keep the tussle over funding separate from other EU matters. He repeated the government line that Budapest was not holding back its approval of ratification of the Nato membership of Sweden and Finland, over the funding row.

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