The European Commission has said it plans to withhold €7.5 billion in funding from Hungary over rule-of-law violations involving corruption in the awarding of public contracts.
The commission on Sunday recommended member states vote to suspend about a third of Hungary’s cohesion funding, which is provided to less economically developed parts of the European Union.
Budapest is due to receive €22 billion in cohesion funds during the current round of EU budget spending, which lasts until 2027. It is also separately seeking to unlock an extra €7 billion of grants and billions more in loans under the EU’s Covid 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.
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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,” Mr Hahn said.
About 50 per cent of public procurement contracts awarded in Hungary have only one bidder, the commission said.
Mr 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.”
The suspension of funds proposed on Sunday follows months of talks with Viktor Orbán’s government over rule-of-law breaches first triggered by Brussels in April this year. The €7.5 billion amounts to 65 per cent of money allocated under three particular cohesion funding streams. In an internal paper in July, Mr 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.
Tibor Navracsics, Hungary’s EU affairs minister and a key ally of Orbán, told the Financial Times last week that Budapest was “open to all options” to address the commission’s concerns. “We can negotiate,” he said.
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.
Mr Hahn said the commission would “gently ask” the council to extend the month-long time period allowed for Hungary to prove it was making progress to “the max possible”. That maximum period would give Hungary until November 19th to change the laws necessary to comply with the EU’s wishes.
Budapest has said it would table a string of new laws to address the commission’s remaining concerns next week. — Copyright The Financial Times Limited 2022