Bad news for forint? Brussels proposed to suspend 7.5 bn EUR EU funds, opened catwalk

The European Commission revealed its decision this morning in the budget conditionality procedure they launched against Hungary because of rule-of-law concerns and corruption. Press reported earlier that 15.8 bn euros were at stake. The good news is that, according to their proposal revealed today, the EC would “only” freeze approximately 7.5 bn euros. Furthermore, they also laid the ground for a future compromise that would allow the Hungarian government to hold that money. Below you may read the details.

The European Commission’s decision is only a proposal for the Council of the European Union, a final decision-maker body on the issue of ministers of finance. However, they will decide with a majority so nobody can veto. As a result, Hungary may become the first member state losing considerable EU financial support due to systematic corruption and fraud, Népszava reported. But there is a way out for Orbán’s administration.

Hungary will not be able to access that sum if the government fails to enact some measures that are able to repel corruption more efficiently. The 7.5 bn euros the European Commission’s proposal talks about is the 65 percent of three cohesion programs for Hungary.

“Today’s decision is a clear demonstration of the Commission’s resolve to protect the EU budget and to use all tools at our disposal to ensure this important objective,” Budget Commissioner Johannes Hahn said in a statement following a meeting of the College of Commissioners, politico.eu reported.

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But why did all this happen? Watchdogs and NGOs had been voicing rule-of-law concerns since Orbán’s coming to power in 2010. They mentioned Fidesz’s influence over the judiciary, control of much of the media landscape, and rampant corruption, Politico says. EU officials replied they did not have the tools to deal with democratic backsliding in member states. Therefore, they created a new mechanism in 2020 “that allows for the suspension of funds over systemic rule-of-law problems that impact European finances.” They started a procedure using that new tool against Hungary this April.

Népszava says that the sum the EC would freeze is lower because Brussels acknowledged the commitment of the Hungarian government to reduce corruption risks.

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The Council of the EU now has 1-3 months to decide about the EC’s proposal. They can either stop the procedure and give all the money to Hungary or sanction Budapest. The final deadline for a decision on the issue is 18 December. The decision needs a 15/27 majority, but the 15 in favour must represent 65 percent of the EU’s population.

There are parallel negotiations with the European Commission regarding the recovery and resilience (RRF) funds. The concerns of the EC are similar, and the government aims to stop that procedure by December. In that case, Budapest would receive 5.8 bn euros as a non-refundable grant by 2026.

Source: Népszava, politico.eu