The European Commission has laid out plans to withhold €7.5 billion in funding for Hungary due to concerns over corruption in how public contracts are awarded.
The proposal unveiled this weekend is the culmination of long-running concerns over the erosion of the rule of law and democratic norms in the member state under its autocratic prime minister Viktor Orbán.
It comes after the European Parliament voted to declare Hungary no longer a democracy and to be an “electoral autocracy”, finding that its elections were held under unfair conditions, judicial independence eroded, and that media and civil freedoms had been curtailed.
The MEPs urged the European Commission to withhold funding to prevent the “misuse of EU funds for political motives”, a reference to accusations that Mr Orbán’s regime has used EU money to reward allies and maintain its hold on power. Mr Orbán dismissed the vote, describing it as “funny”.
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The Commission unveiled its plan on Sunday, proposing to cut by a third the cohesion funding that Hungary is due to receive by 2027, a programme that funds development in economically disadvantaged areas of the European Union.
The proposal must be approved by a majority of EU member states, not including Hungary.
It represents the first use of the EU’s new “conditionality mechanism”, which allows for funds to be withheld due to rule-of-law concerns, which was introduced two years ago amid pressure to address democratic backsliding in Hungary and Poland.
The European Commission said it had identified “systematic irregularities and deficiencies and weaknesses in public procurement”, “weaknesses in the effective pursuit of investigations and prosecutions in cases” involving EU funds, and insufficiencies in addressing conflicts of interest among government officials.
Commissioner Johannes Hahn, in charge of budget and administration, told journalists: “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.”
A proposal by Hungary to introduce 17 measures to counter corruption “should in principle be capable” of addressing these issues, but only if “implemented accordingly”, Mr Hahn continued.
The move was greeted by some as a welcome if belated step to address the problem of growing autocracy and the abuse of funds in Hungary.
But others were less impressed, with German Green MEP Daniel Freund describing the move as “too late, too little, too unambitious”.
Orbán’s political director, Balázs Orbán, promised that the Hungarian government would be able to meet the commission’s demands within three months “and receive EU funds”, while Polish media reported that Warsaw could seek to block any cuts to funding imposed on Hungary.
Parallel negotiations continue regarding another €7 billion in grants and additional cheap loans that are part of the EU’s Covid-19 economic recovery fund, which were earmarked for Hungary but also held up due to rule-of-law concerns.
Hungary has become increasingly isolated in the EU since the invasion of Ukraine because of Mr Orbán’s policy of maintaining close ties with Russian president Vladimir Putin and pushing to soften the EU’s sanctions.
According to the EU’s anti-fraud agency Olaf, Hungary had irregularities in almost 4 per cent of its spending of EU funds between 2015-2019, the worst result in the bloc.
