What Hungary must do to receive EU funds frozen under Orban

Hungary's new government and the European Commission have struck a deal that puts the country on track to unlock €16.4 billion ($19 billion)  in EU funds frozen over concerns about corruption and the rule of law during the rule of Viktor Orban.

Now, the government, led by Prime Minister Peter Magyar, has until August 31 to make good on the pledges he made to European Commission President Ursula von der Leyen during their meeting on Friday. 

These include commitments to structural reforms and anti-corruption measures, as well as steps to bolster academic freedom in Hungary.  

When will Hungary receive the EU funds? 

Friday’s deal does not guarantee that Hungary will get the money. “We haven’t agreed on disbursal," a senior EU official told journalists at a background briefing on Friday. "We have agreed on the conditions that need to be met."  

The most important of these are the EU's 27 binding conditions, or "super milestones." If Hungary fails on any of these, it will get no funding, EU officials said. 

Even with the two-thirds parliamentary supermajority Magyar's Tisza party won in early May, meeting the criteria will be a challenge, Julia Pocze, a legal expert with the Brussels-based think tank Centre for European Policy Studies, told DW — and that could make the government vulnerable to political attacks.  

"They talked a lot about wanting to legislate in a way that allows for proper debate, or even consultation with the public," Pocze said. "There won't really be time for that." 

Intense high-level negotiations 

The agreement was preceded by lengthy talks between Hungary's government and the European Commission — even leading to a rescheduling of the announcement, which was initially expected on Thursday. 

"The reason it took us longer was to be absolutely sure that we have a list of reforms and investments which can be met by August 31," another EU official told journalists. 

As a result of the talks, changes to Hungary's pension and tax systems were taken off the list of requirements, as they were not deemed feasible in the current economic circumstances and the short time frame.  

Issues such as Hungary's position on opening negotiations on Ukraine's accession to the European Union — which Orban's government had blocked — were not part of these negotiations, EU officials said. 

Of the total €16.4 billion, €12.9 billion comes in nonrefundable grants and about €3.5 billion in loans. After August 31, €10 billion from the European Union's pandemic recovery funds will be gone for good. 

What does Hungary have to do? 

Magyar's government has signaled its willingness to meet the criteria, even going beyond the necessary requirements in some cases — for example, by announcing that it would join the European Public Prosecutor's Office (EPPO), a body that aims to protect EU funds from corruption. 

Among the points agreed between Hungary and the European Union is a reform of the current structures governing the country's universities, which would free up about €2.2 billion for academia. Hungary's national investment bank is also set to be reformed and could thus benefit from a €2 billion cash injection. 

Apart from promised reforms, Hungary and the European Union agreed on a list of projects that would benefit from the EU funds. This includes putting about €1.5 billion into the energy grid, roughly €1.8 billion into railway investments and €500 million into an AI "gigafactory," among other projects, the senior EU officials told journalists. 

Unmaking Orban's legacy 

The Tisza-party won April's parliamentary election on a platform that included unlocking the billions of EU funds frozen during Orban's 16 years in power.  

Orban — who has not taken up his parliamentary mandate — swiftly went on the political offense after Friday's announcements. In a social media post, he asked: "What Hungarian interests has [Peter Magyar] sold out to Brussels? There's no such thing as a free lunch."   

But Orban's government left behind a struggling economy, with little growth over the last three years of his reign. The €16.4 billion euros — equivalent to about 14% of the country's GDP — would mean a significant budgetary relief.  

The fiscal situation in Hungary is "extremely poor," according to EU officials, who are expecting a budget overrun of around 7% this year.  

The unlocking of EU funds is thus good news, Zsolt Darvas, an economist with the Brussels-based think tank Bruegel, told DW. "It signals to investors that legal certainty is strengthening, which could stimulate investment appetite, regardless of the arrival of EU funds," Darvas said.  

What's next?

That the European Commission has agreed to potentially unlock this much money this quickly is seen by many as a major sign of goodwill by Brussels.  

"The Commission is meeting Hungary halfway, and is trying to do what it can to bring it back into the European mainstream," Pocze said. "If Magyar's government keeps its promises, then this trust is well-placed, but they are taking a risk." 

Hungary is set to hand in the formally revised list of planned reforms and projects in early June. This plan will then be approved by the European Commission and the European Council in July, the EU officials said.   

In the meantime, Hungary's government is expected to initiate the necessary legislative steps to meet the criteria for the disbursal of the funds by August 31. 

Edited by: Milan Gagnon