Billions lost in EU funding to cause economic fallout for Hungary

Hungary faces a substantial loss of EU funding this year, intensifying budgetary pressures. Additionally, the government’s economic targets are under threat due to slowing export markets, declining domestic consumption, and a weakening forint.

Major losses in EU funding

As Portfolio writes, Hungary faces substantial losses in EU funding this year, with estimates suggesting over EUR 1.1 billion could be forfeited due to unresolved rule of law disputes and delays in the conditionality procedure. Additionally, EUR 300 million in fines are set to be deducted by the European Commission. Under the n+2 rule, any suspended funds not addressed within two years will be permanently lost, posing a critical deadline for Hungary to lift the freeze by year-end. The frozen funds impact key allocations, including HUF 430-450 billion (approximately EUR 1-1.1 billion) from the 2022 budget, targeting vital programmes.

Concerns about transparency

Hungary’s budget faces mounting pressure due to fines from the European Court of Justice, including a daily EUR 1 million penalty and a one-off EUR 200 million for failing to implement asylum reforms. The European Commission has already deducted EUR 300 million from cohesion and agricultural EU funding, delaying development projects and complicating efforts to meet the 2024 budget deficit target. Approximately HUF 125 billion (EUR 304 million) must now be sourced domestically to replace these funds.

Despite reforms claimed by the government in autumn 2023, the European Commission continues to express concerns about transparency and anti-corruption measures. Key unresolved issues include strengthening the Integrity Authority, improving asset declarations, ensuring judicial oversight of corruption cases, and addressing conflicts of interest in public institutions. Budget Commissioner Johannes Hahn highlighted the slim chances of resolving these disputes before year-end, with inevitable resource losses under the n+2 rule looming in 2024.

European Commission, Brussels. Photo: Pixabay

Still optimistic?

Hungary’s medium-term economic plans, released in November, aim to address the European Commission’s excessive deficit procedure and the ongoing challenges of securing EU funding. GDP growth is forecast at a modest 0.8% for 2024, down from earlier projections of 1.5%, with hopes for recovery to 3.4% by 2025. However, external risks, including potential trade conflicts involving the US, EU, and China, threaten these targets, potentially reducing domestic GDP growth by 1-1.5%.

The government is committed to reducing the structural deficit to 2.7% of GDP by 2025 and public debt annually to meet EU requirements, yet this year’s budget deficit is expected to reach 4.5%. Achieving these fiscal goals is complicated by limited EU funding access, daily fines tied to migration policy, and the potential loss of frozen cohesion funds. Rising costs for pensions, public sector wages, and essential services, alongside weak export markets and cautious consumer spending, further challenge recovery. Plans to boost investment and energy efficiency depend on fiscal discipline, posing a significant test for the government’s strategy.

Read also:

• European Commission demands a further EUR 60 million from Hungary
• Orbán cabinet: Hungary can receive 6.61 billion euros from the EU in 2025

Featured image: depositphotos.com