The dispute between EU states and wayward Hungary over the latter’s failure to defend the rule of law and protect EU funding from misappropriation has finally come to a head. On Wednesday the European Commission proposed to put on hold EU payments to Hungary worth up to €13.3 billion in Covid recovery and cohesion funding, pending the implementation by Budapest of legal and financial reforms that Brussels deems necessary to bring the country into conformity with EU standards.
The commission is proposing to use for the first time its powers under its new rule of law conditionality mechanism to protect EU financial assets being spent in a €7.5 billion cohesion funding programme. It has demanded 17 specific reforms including the establishment of an anti-corruption taskforce and the tightening of rules against conflicts of interest in the award of public funds.
Separately, while the commission approved Hungary’s long-delayed €5.8 billion Covid recovery plan on Wednesday – a “comprehensive and adequately balanced response” to the country’s economic and social situation – it said no money should be released until the 27 “super milestones” reforms were implemented. These include securing the independence of the supreme court and judicial appointments,and increasing the powers of the National Judicial Council.
Prime Minister Viktor Orbán needs the cash badly – some 80 per cent of state investment is funded by EU cohesion cash and the economy is in dire straits. The forint has fallen sharply while a budget shortfall of more than 6 per cent of gross domestic product is expected this year.
EU ministers should not succumb to Hungarian blackmail. Contrary to the spirit of EU collective decision-making, it has used its veto in areas like taxation and foreign affairs to hold issues hostage to a favourable decision on funding. This includes blocking the implementation of a minimum corporate tax in the EU, which is vital to a hard-won global deal on taxation. And Budapest has also been threatening a proposed €18 billion loan programme for Ukraine in December.
Hungary denies such linkages and insists it is implementing the reforms which, it says, should be in place in the new year. It accuses the EU of political meddling in internal affairs. The conditionality mechanism is, however, an important tool to enforce common judicial and probity standards and the protection of the union’s funds.
EU finance ministers are expected to ratify the commission decision at their meeting on December 6th. They require a qualified majority vote of 65 per cent, representing 55 per cent of the EU population. Support for Hungary from its traditional ally, Poland, is unlikely to suffice, and the latter has anyway fallen out with Hungary over its support for Russia. Orban is increasingly isolated.