Brussels to withhold part of Hungary’s regional aid over reform failures

Brussels has warned it will hold back most of Hungary’s regional aid because Prime Minister Viktor Orbán’s government has yet to enact reforms aimed at ensuring the country’s judicial independence. 

The European Commission said on Thursday it had struck an overarching agreement with Budapest over cohesion funding for the 2021-27 budget period. But the bulk of the €22bn of EU money at stake cannot be released for the time being because Hungary has yet to fulfil a number of conditions relating to the rule of law. 

“Cohesion investments will help transform Hungary into a fairer, greener, smarter and more territorially balanced economy and society,” said Elisa Ferreira, commissioner for cohesion and reforms. “However, these investments can only be effective if accompanied by the appropriate institutional and legal environment and if implemented in line with the EU’s rules and values.”

The decision underscores fiscal challenges faced by Orbán, who is anxious to unlock EU funding following a steep fall this year in Hungary’s currency, the forint. Budapest has been battling Brussels for years over its record on the rule of law, which critics say threatens the fair and transparent distribution of EU taxpayer money.

EU ministers last week signed off on a decision by the commission to withhold about €6.3bn of funding because of rule of law violations. Thursday’s decision on cohesion affects a wider pool of European cash, and relates to provisions linked to the EU’s charter of fundamental rights that are now part of the bloc’s budget legislation. 

Under the rules, commission officials have to check for compliance with the charter before reimbursing member state claims for cohesion payments. Curbs on judicial independence in Hungary will prevent approvals for the present, according to the commission. 

Brussels also said certain payments would be stopped because of a Hungarian law that discriminates against people on the basis of their sexual orientation and gender identity, as well as provisions that pose “serious risks to academic freedom and the right to asylum”. 

The commission considers that the “enabling condition” relating to the charter of fundamental rights is not yet fulfilled, which means it “cannot reimburse expenditure,” said Ferreira. “We’ll keep working with Hungarian authorities to overcome this situation.”

The Council of the EU last week approved Hungary’s bid for a slice of the Covid-19 recovery fund, a year and a half after Budapest first submitted its request for the money. But payments under this scheme will also not be made until key rule of law reforms are enacted, among them changes securing judicial independence. 

Hungary said on Thursday that by adopting funding agreements with the commission before the end of 2022 it had ensured it would ultimately access all the EU funding it sought. 

“We have reached our goal: by the end of the year we signed all agreements with the European Commission that enables us to access EU funds,” EU affairs minister Tibor Navracsics said in a Facebook video on Thursday.

He did not address the conditions under the Charter of Fundamental Rights, however, and was not immediately available for further comment.

The commission’s approach to Hungary’s cohesion money mirrors parallel decisions relating to Poland, which is also under fire because of a lack of judicial independence.

The Financial Times reported in October that a failure by Warsaw to comply with the requirements on fundamental rights means the bulk of payments under the union’s new round of cohesion spending will also be held back until the matter is resolved. Poland is expecting to receive cohesion funding worth €76.5bn from 2021 to 2027.