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My Europe: A major test for both the EU and Hungary

Zsuzsanna Vegh, Politikwissenschaftlerin
Zsuzsanna Vegh
November 25, 2022

The EU is worried about the state of democracy, the rule of law and corruption in Hungary and has threatened to withhold vital funds to force reform. The question is, will Viktor Orban's government play ball?

Hungarian Prime Minister Viktor Orban arrives for a special meeting of the European Council, Brussels, May 30, 2022
The EU wants to halt what it sees as a democratic backslide in Hungary by threatening to withhold badly needed EU funds for the countryImage: Bart Maat/ANP/picture alliance

Although the cold season has just begun in Europe, relations remain heated between Hungary and the institutions of the European Union.

In mid-September, the European Commission gave Budapest until November 19 to demonstrate its credible commitment to fighting corruption. The Commission now has to evaluate whether measures taken by the government of Prime Minister Viktor Orban are enough to guarantee the appropriate use of EU funds in Hungary.

EU Budget Commissioner Johannes Hahn addressing the European Parliament, Strasbourg, June 9, 2021
EU Budget Commissioner Johannes Hahn described the Commission's September recommendation to suspend funding to Hungary as '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'Image: Julien Warnand/EPA Pool/AP/picture-alliance/dpa

A positive assessment would pave the way for the Council of the EU to approve the disbursement of funds that are badly needed in Hungary, which is experiencing financial difficulties, including its highest rate of inflation (over 21% in October) since the mid-1990s.

A negative evaluation, on the other hand, could prompt the unprecedented measure of the EU suspending these funds in the first ever use of the EU's "rule of law conditionality" mechanism.

Decision expected on December 6

With the credibility of the Hungarian government's intentions seriously challenged, the final decision, which the Council is expected to take on December 6, is also a test of EU institutional commitment to standing up for the values of the European Union.

By blackmailing the EU on crucial matters, however, the Hungarian government under Prime Minister Orban is seeking to tilt the balance in its favor.

A sign in a Budapest supermarket informs customers about the extension of a price cap to basic products like potatoes and eggs, November 15, 2022
Budapest has extended a price cap for basic products like potatoes and eggs to ease the burden of high inflationImage: ATTILA KISBENEDEK/AFP/Getty Images

Budapest approved reforms to unlock EU funding

On September 18, after months of negotiations, the European Commission proposed suspending €7.5 billion ($7.8 billion) in funds to Hungary — about a third of the funds allocated to the country under the current EU budget — because of concerns about the state of democracy, the rule of law and, more specifically, corruption there.

To avoid losing access to these funds, the Hungarian government agreed to implement a list of 17 anti-corruption measures by November 19.

Among others, these measures included the extension of cooperation with the European Anti-Fraud Office (OLAF), amendments to public procurement legislation and to the operation of state asset management foundations, facilitating access to information of public interest and the creation of an Anti-Corruption Working Group as a monitoring and advisory body.

Most importantly, the government pledged to establish a new anti-corruption body called the Integrity Authority to guarantee the appropriate use of EU resources.

'Family photo' of EU leaders at the EU summit in Prague on October 7, 2022
Hungary's Prime Minister Viktor Orban was part of the traditional 'family photo' of EU leaders at the EU summit in Prague in early October, but tensions between the EU and Hungary are running highImage: Petr David Josek/dpa/AP/picture alliance

Reform that brings no fundamental change?

Although the list of measures seems extensive, the reality is that none of them would bring about fundamental change or loosen the governing parties' grip on state institutions, including the judiciary and the prosecutor's office.

In other words, even if the measures are implemented, the essence of Fidesz's system of governance, the so-called "System of National Cooperation," would remain untouched.

According to a review by members of the European Parliament in mid-November, however, even these measures were not sufficiently implemented.

A 'half-hearted approach' to reform?

The establishment of the Integrity Authority is indicative of the Orban government's half-hearted approach to resolving the dispute with the European Commission.

Zsuzsanna Vegh
Zsuzsanna Vegh sees the EU's upcoming decision on whether to withhold funding for Hungary as 'another chance to draw the line'Image: Privat

Although this authority has the power to suspend public procurement processes in case of irregularities, file cases against state institutions if they do not fulfill their duties and inform OLAF and the European Public Prosecutor's Office (EPPO) of serious irregularities, it cannot challenge the decisions of the public prosecutor, investigate in its own right, or assume powers from other institutions even if they are not operating satisfactorily.

The selection of the authority's leadership team also raised questions. The intention was that an independent eligibility committee would shortlist candidates for the positions of president and two vice-presidents — all of whom were supposed to be politically independent.

However, the eligibility committee was established by the directorate responsible for auditing EU funds under the Ministry of Finance in an opaque procedure. Ultimately, a director from the abovementioned directorate, Timea Holbusz, was appointed one of the vice-presidents of the new authority.

Orban's government keeps a tight grip on the reins

Overall, it is telling that the government preferred to set up a new institution instead of joining the EPPO, which would allow the EU's independent public prosecutor to investigate and prosecute criminal cases related to the EU's financial interests in Hungary.

Although the Hungarian government has defended this decision on grounds of national sovereignty, in practice it is a clear rejection of any safeguards that the government cannot control.

A crowd on Liberty Bridge in Budapest protest in solidarity with students and teachers demanding higher wages and better working conditions, October 23, 2022
Tough times: People gather in Budapest to protest in solidarity with students and teachers demanding higher wages and better working conditionsImage: Anna Szilagyi/AP Photo/picture alliance

Ongoing negotiations

The above measures in the rule of law procedure were introduced in the context of ongoing negotiations about Hungary's access to €5.8 billion under the Recovery and Resilience Facility, which is meant to help the Hungarian economy recover after the COVID-19 pandemic.

These funds were also held back by the Commission over rule of law concerns, especially regarding judicial independence. In all likelihood, the Hungarian government will not gain access to these funds without meeting another list of "milestones" (domestic reforms) drawn up by the Commission in addition to the abovementioned 17 measures.

Hungary exerting pressure on the EU

While the government's increasing financial needs and the looming deadline for securing the recovery funds have played into the hands of the Commission, the fact that the decision was dragged out has allowed the Hungarian government to exert pressure too.

For months, the government has been withholding its approval of Sweden's and Finland's NATO accession — the only NATO member in the EU to do so.

Gergely Gulyas, Hungarian Prime Minister Viktor Orban’s chief of staff, speaking at a press conference, Budapest, April 3, 2022
'The government has done its best and is still doing so, in order to seal the necessary agreements with the EU,' said Gergely Gulya, PM Viktor Orban's chief of staffImage: Szilard Koszticsak/MTI/AP/picture alliance

Hungary blocking assistance for Ukraine

Hungary is also the only country to oppose the Commission's initiative to provide Ukraine with €18 billion in assistance that would be financed with a loan taken out by the EU. A decision on this initiative will be made on December 6, at the same Council meeting where Member States will decide on Hungary's EU funds.

The Hungarian parliament was expected to vote on Sweden and Finland's NATO accession on December 7, but for good measure even this vote has now been postponed until next year in a move suggestive of political blackmail.

A test of the EU's resolve

Whether the Commission deems the Hungarian government's anti-corruption measures sufficient and whether it can set substantial milestones for the release of recovery funds remains to be seen.

President of the European Commission Ursula von der Leyen looks serious as she listens to Hungary's Prime Minister Viktor Orban, Brussels, June 23, 2022
Will the European Commission stand firm? What happens next will be a test of 'the Commission's resolve to finally step into its role as the guardian of the EU's fundamental values and principles,' says Zsuzsanna VeghImage: Ludovic MARIN/AFP

These steps will be a test not only of the credibility of the EU's rule of law conditionality mechanism, but also of the Commission's resolve to finally step into its role as the guardian of the EU's fundamental values and principles.

If the suspension of funds remains on the table, it will ultimately be up to Member States to hold the Hungarian government accountable even in the face of blackmail.

When making their call, they should look to the developments of the past 12 years, which serve both as evidence and as a warning: Appeasement has only facilitated further backsliding and empowered an autocratic government in the long run. This is yet another chance to draw the line.

Zsuzsanna Vegh is a researcher at the European University Viadrina and a visiting fellow at the German Marshall Fund of the United States. The views and opinions expressed in this article are those of the author and do not necessarily reflect those of the institutions where she works.

Edited by: Aingeal Flanagan and Keno Verseck