EU set to hold back €7.5bn from Hungary over rule of law violations

Brussels has said it plans to withhold €7.5bn in funding from Hungary over rule of law violations involving corruption in the awarding of public contracts.

The European Commission on Sunday recommended member states vote to suspend around a third of Hungary’s cohesion funding, which is provided to less economically developed parts of the EU.

Budapest is due to receive €22bn in cohesion funds during the current round of EU budget spending, which lasts until 2027. It is also separately seeking to unlock an extra €7bn of grants and billions more in loans under the EU’s Covid-19 recovery fund, which the commission said could also be affected if Hungary did not address rule of law issues.

The decision to withhold the funds must be approved by a majority of the EU’s member states, excluding Hungary, within a month but the deadline could be extended by a further two months “in exceptional circumstances”, the commission said.

Johannes Hahn, EU budget commissioner, said on Sunday the measures were designed to address what Brussels sees as risks to the bloc’s budgetary procedures resulting from Budapest’s lack of transparency in awarding public contracts, shortcomings in Hungary’s efforts to tackle corruption, and weaknesses in prosecuting those who misused European funds.

“Our ultimate objective under this mechanism is that the budget is no longer at risk and we hope to achieve this as soon as possible through the adequate reforms in Hungary,” Hahn said.

About 50 per cent of public procurement contracts awarded in Hungary have only one bidder, the commission said.

Hahn noted that in August Hungary proposed 17 ways to fix the problems including the establishment of an independent “integrity authority”, which he welcomed “even if they were at a late stage”.

But he said: “To consider these remedial measures to be adequate the commission needs to be able to conclude they will put an end to risks to the union budget and the EU’s financial interests.”

Tibor Navracsics, a European affairs minister and a key ally of prime minister Viktor Orbán, told reporters on Sunday that the 17 changes would be presented to parliament next week.

“The last thing the government wants is not to honour its commitments,” he said. “The government is not out to mislead the commission, which expects obligations to be met. We will honour our commitments so there will be no lost funds.”

Budapest plans to create an anti-corruption task force, broaden the scope and control of wealth declarations, and expand ways to prosecute crimes involving public funds.

The suspension of funds proposed on Sunday follows months of talks with Orbán’s government over rule of law breaches first triggered by Brussels in April this year. The €7.5bn amounts to 65 per cent of money allocated under three particular cohesion funding streams. In an internal paper in July, Hahn proposed that 70 per cent of the funding to these programmes be suspended.

Officials in Brussels have been keen to underline that Hungary’s application for money from the recovery fund is independent from suspension of the cohesion money. However, if Budapest does not make notable changes to tackle graft its application for the recovery fund could also be hampered.

Daniel Freund, negotiator for the European Parliament’s Green group on budgetary matters, said that “what the EU commission is selling as a success is less impressive at closer inspection” given that Hungary will still receive the majority of its EU funds. “It is fatal that Viktor Orbán can still avert these sanctions before the end of the year with a few pseudo-reforms,” he added.

Hungary has also provoked anger from other EU capitals for continuing to engage with Russia in order to secure gas supplies, despite EU efforts to sanction Moscow over its invasion of Ukraine. Budapest has also criticised western sanctions as counterproductive.

Hahn said the commission would “gently ask” the council to extend the month-long period allowed for Hungary to prove it was making progress to “the max possible”. That maximum period would give Hungary until November 19 to change the laws necessary to comply with the EU’s wishes.

Budapest would make all the necessary changes and inform the commission by November 19, Navracsics said.

Budapest has said it will table a string of new laws to address the commission’s remaining concerns next week.

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