The EU proposes suspending 7.5 billion euros in funds to Hungary over graft concerns

The European Union on Sunday recommended suspending some 7.5 billion euros in funding for Hungary over corruption, following a long standoff with Budapest. This is the first such case in the 27-nation bloc under a new sanction meant to better protect the rule of law.

The mechanism for the new financial sanction, which tie its budget to basic democratic standards, was introduced by the EU two years ago in response to the “undermining of democracy” in Poland and Hungary, where Prime Minister Viktor Orban subdued the courts, the media, NGOs and academia, as well as restricted the rights of migrants, gays and women during more than a decade in power. The European Parliament has brandished Hungary under right-wing Orban as an ‘electoral autocracy.’ bloc’s shared budget for 2021-27 worth a total of 1.1 trillion euros.

The 7.5 billion euros amount to 5 per cent of the country’s estimated 2022 GDP. EU countries now have up to three months to decide on the proposal; Hungary has until November 19 to address the EU’s concerns. If the majority of EU member states back the proposal, the move will affect Hungary’s so-called cohesion funds, which are intended to help bring the economies and infrastructure of EU countries up to the bloc’s standards.
EU Budget Commissioner Johannes Hahn was quoted by Reuters as saying: “It’s about breaches of the rule of law compromising the use and management of EU funds. We cannot conclude that the EU budget is sufficiently protected.” He said the proposal was in response to allegations of corruption and ‘rule of law violations’ against the government led by Orban, who has stonewalled these allegations.

Systemic irregularities

Hahn highlighted systemic irregularities in Hungary’s public procurement laws, insufficient safeguards against conflicts of interest, weaknesses in effective prosecution and shortcomings in other anti-graft measures. The Commission had recommended the suspension of about a third of cohesion funds envisaged for Hungary from the bloc’s shared budget for 2021-27 worth a total of 1.1 trillion euros, he said.

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In recent weeks, with Budapest coming under pressure to secure money for the ailing economy and forint, the worst-performing currency in the EU’s east, Orban’s government has proposed creating a new anti-graft agency. Positioning himself against the worldview of the liberal West, the 59-year-old who has entrenched himself in power, calls himself a “freedom fighter” and denies that Hungary — an ex-communist country of some 10 million people — is any more corrupt than others in the EU.

The Commission is already blocking some 6 billion euros in funds envisaged for Hungary in a separate COVID economic recovery stimulus over the same corruption concerns. According to the bloc’s anti-fraud body OLAF, Hungary had irregularities in nearly 4% of EU funds spending in 2015-2019, by far the worst result among the 27 EU countries. By cultivating continued close ties with Russian President Vladimir Putin and threatening to deny EU unity needed to impose and preserve sanctions on Russia for waging war against Ukraine, Orban has also rubbed many in the bloc the wrong way.

Suspension of funds

The EU has long accused the conservative government of undermining democracy. On Thursday, members of the European Parliament (MEPs) voted to condemn Hungary’s slide into authoritarianism. A Commission report published in July noted “an environment where risks of clientelism, favoritism and nepotism in high-level public administration remain unaddressed.” Hahn said the EU was recommending the suspension despite proposed measures by Budapest to address Brussels’ concerns.

Hungary said on Saturday that it would try to end the standoff with Brussels by passing a series of new anti-corruption laws within days. The measures were expected to include establishing an independent anti-corruption watchdog to monitor the use of EU funds as well as steps to make the government procurement process more transparent. “The government has either accepted the requests of the European Commission, or, in the areas where we could not accept them, we have managed to reach a compromise that is satisfactory to both parties,” Orban’s chief of staff, Gergely Gulyas, told a media briefing on Saturday.