EU funds will not arrive on time to Hungary

There is little chance that the European Commission will release significant amounts from the Hungarian budgets before the second half of the year. There is a simultaneous communication that EU funds could come soon, while more and more ministers act as if they are of no importance to the Hungarian economy.

The European Commission launched the rule of law mechanism against Hungary almost immediately after last year’s parliamentary elections. Tibor Navracsics, Minister of Regional Development, was asked to lead the negotiations and was initially optimistic. The deadline, promised for the end of the summer, was slowly pushed back. At the end of 2022, the partnership agreement between the government and Brussels was reached.

Meanwhile, the European Council suspended 55 percent of 3 operational projects, meaning around EUR 6.3 billion in funding. It has stopped transfers for the entire budget of the Hungarian government, due to the non-fulfilment of horizontal eligibility criteria. The conditions were as follows:

• implementation of a judicial reform
• resolving political conflicts of interest in the public foundations that manage universities
• amendments to several pieces of legislation that are currently not legally consistent with the EU Charter of Fundamental Rights

Tibor Navracsics has held several meetings in Brussels and has repeatedly stated that Hungary will fulfil the conditions by the deadline. However, now, the Minister is more cautious when it comes to his statements. The deadline is the end of March, by which point the government must have the legislation passed in Parliament. Under the EU Council’s decision, payments under the EUR 5.8 billion RRF and cohesion funds have been made subject to 4 justice conditions for the 27 “super-milestones”.

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Tibor Navracsics said that based on the Commission’s assessment, the European Council will “either close or extend” the rule of law procedure. Portfolio.hu has been informed that they will almost certainly decide in favour of an extension. This does not mean that the total suspension of payments will not be removed. Several Commission officials confirmed that there will be no immediate removal of the 55 percent of the payments affected by the rule of law procedure.

EU funds in Hungary are no longer that significant

Márton Nagy, Minister of Economic Development, said that the role of EU funds in Hungary is no longer that significant. FDI is now at least as important in investment as Hungarian and EU budget funds combined. There are many other investments such as the combined financing volume of Exim, MFB and the Széchenyi Card Programme, which amounts to HUF 3,000 billion (EUR 7,8 billion). EU funds are expected to reach HUF 2200 billion (EUR 5,7 billion) this year, of which HUF 950 billion (EUR 2,5 billion) would come from the former budget, according to the plan.

Within the European Commission, there is a strong view that it is not only the paragraphs that count, but also how the legislation is applied in practice. On the other hand, the hierarchy of EU procedures does not allow everything to be referred to at once. Suspension of referral on the basis of horizontal enabling clauses is the first step.

Even if the horizontal conditions are accepted, this does not automatically unblock 55 percent of the funds. First, the Commission may unblock the 45 percent segment above this. And the European Commission will only bring the matter to the Council if it concludes that Hungary has fully implemented the 27 super-milestones. Whether the Hungarian government meets the enabling conditions in the area of academic freedom is again a matter for the Commission to examine. The most important thing for Erasmus programmes is to manage conflicts of interest, i.e. to ensure that government officials are not members of the boards of trustees of the foundations. But other areas covered include the rights of the LGBTQ+ community and refugees.

Very few changes over a long period of time

The Justice Ministry, led by Judit Varga, presented a draft law on judicial reforms in January. Also in the Erasmus issue, all that is known is that the government members have resigned from the board of trustees.

Although several comments were made by the Commission on the rules, the government did not indicate any changes until mid-February. On the Erasmus issue, however, there are no plans for changes to the duration of mandates and the application of conflict of interest rules have been presented so far.

According to Navracsics, the Hungarian draft amendments to the law to close the case will be presented to the European Commission next week. However, the 31 March deadline for these laws to pass through Parliament is approaching fast. Thus, the evaluation procedure could start and reach a conclusion in April-May at the earliest. This means that the earliest EU funding could arrive is in the summer months.

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Source: portfolio.hu