The EU sees the rule of law in Hungary in danger due to corruption and cuts the member country’s funds for the first time. A defeat for Budapest and Viktor Orban that has global consequences. Bernd Riegert from Brussels.

MEP Daniel Freund (Bündnis 90/Grüne) called the decision of the EU member states to freeze subsidies for Hungary from the EU budget until further notice “historic”.

While the term should be used sparingly, it is in fact the first time in the Union’s 65-year history that funds have been withheld from a member. “Autocrats in the EU will now have their funds cut,” said Freund, a deputy in Strasbourg, who has been dealing with violations of the rule of law for a long time – especially in Hungary.

In a nightly meeting, the ambassadors of the EU states decided to withhold 6.3 billion euros of the planned 22 billion euros from the cohesion fund for the adjustment of living conditions in the years 2023 to 2027. The EU Commission actually wanted to hold back a sum of 7.5 billion, which corresponds to about a third of the payments planned so far.

Two thirds are not affected by the procedure. It is therefore not the case that all projects with EU funding in Hungary have to be frozen now. The ambassadors reduced the amount proposed by the commission because Hungary has started to meet some demands of the EU commission.

Nine months ago, EU Commission President Ursula von der Leyen started the “rule of law mechanism” procedure. According to the regulations, Hungary had until the end of the year to fulfill the conditions in order to guarantee under the rule of law that the funds would not be diverted through corruption. This has not happened sufficiently, hence the decision of the EU states.

“The EU budget as a whole is in danger due to the lack of rule-of-law controls in Hungary,” warned EU Budget Commissioner Johannes Hahn in September. This link is important. At the request of Hungary and Poland, the European Court of Justice in Luxembourg clearly defined the rules for the procedure.

Surprisingly for some, the vote against Hungary fell with a very large majority. According to the Czech Presidency, even other right-wing governments, such as in Poland or Italy, did not vote for Hungarian interests.

The ambassadors’ decision now has to be legally confirmed by the governments of the member states. That could happen before the EU summit this Thursday. At the meeting, the scrappy Hungarian Prime Minister Viktor Orban could once again raise the issue of his country’s punishment.

Also surprisingly, the Hungarian ambassador to the EU announced that his country would no longer block the blockade of 18 billion euros in household aid for Ukraine, which had been shaken by the Russian war. After initial hesitation, Hungary has now approved the financing of more weapons for Ukraine from a pot with a volume of 5.5 billion euros.

In addition, Hungary is withdrawing its veto against the introduction of a global minimum tax. This means that a new tax system that is desired worldwide can now be created. The minimum tax is intended to prevent tax evasion and achieve fair taxation of international corporations.

The G20 countries had agreed to the minimum tax of 15 percent, only the European Union was unable to act for over a year because of Hungary’s refusal. Observers suspect that by lifting its blockades, Hungary has achieved a reduction of 1.2 billion euros in punitive measures.

The payment of a further 5.8 billion euros from the EU’s “Corona Recovery Fund” for Hungary will also be withheld. Although the EU members have confirmed that Viktor Orban’s government is entitled to this sum from the 750 billion pot, they have linked it to more than 20 conditions. These are similar to the demands for fighting corruption, transparent awarding of contracts and control of the use of funds, which are also raised in the first procedure under the “rule of law mechanism”.

Should the Hungarian Parliament pass corresponding laws in the future and practical implementation can be proven, the EU can release the funds at any time. In total, it is about twelve billion euros from both procedures.

The concessions that Viktor Orban has made so far show how desperate he is at the moment, says Hungarian opposition politician Zsuzsanna Szelenyi in an interview with the think tank European Council on Foreign Affairs (ECFR): “He really needs the money. The Hungarian economy is in bad shape.”

Zsuzsanna Szelenyi warns that given his political nature, Viktor Orban will certainly hit back. “Under pressure, he usually becomes even more radical.”

The Hungarian government is already conducting public campaigns against the EU Commission and the European Union. A public opinion poll is currently underway aimed at justifying a Hungarian veto on the EU’s sanctions on Russia.

Unanimity in the EU is required for sanctions, foreign policy, accession procedures and budget issues. Hungary would therefore still have many opportunities to block EU decisions in order to blackmail the release of funds.

At the moment, however, the EU has the upper hand, says Luxembourg Foreign Minister Jean Asselborn, who has long criticized the state of the rule of law in Hungary. “The EU can, if it wants to,” Asselborn said on Deutschlandfunk. “We have told Hungary that ignoring the rule of law is no longer acceptable. This is a very important point. Orban has decisively lost the fight against the European Union.”

The EU budget commissioner, Johannes Hahn, who is in charge of the proceedings against Hungary, said back in September that apparently only financial pressure would have an effect. “That’s actually unfortunate, because it’s our intention to improve the situation in Hungary and not to punish it.”

Does the “rule of law mechanism” as applied to Hungary now have a signal effect for other states, such as Poland? In principle yes, says EU Commissioner Johannes Hahn. However, there must always be a clear connection between the EU budget and the rule of law problems, as the European Court of Justice has made clear.

This was the case with Hungary because of the risk of corruption. According to the budget commissioner, this is not the case in Poland, which has been criticized for the lack of independence of its courts.

The EU has other tools at its disposal to bring member states back into line with the rule of law. Disciplinary proceedings under Article 7 of the EU treaties are still ongoing against Poland and Hungary, but progress is slow. There are a number of proceedings against Poland for breach of contract. Poland has lost several judicial reform cases before the European Court of Justice, but partially ignores the verdicts.

That’s why Poland has been paying a fine of one million euros every day since September 2021 – at least in theory. In practice, the Polish government refuses to transfer the money. The EU Commission could start deducting the millions from subsidies that Poland is entitled to from the EU budget.

Author: Bernd Riegert

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The original of this article “The EU holds back twelve billion in the dispute with Hungary” comes from Deutsche Welle.