Weekly newsletter

Hungary Gives Up on HUF 3,400 Billion Reduced-Rate EU Credit

Hungary Today 2021.04.29.

Just a week ago, the government planned to apply for the full funding of the EU’s coronavirus recovery fund, totaling nearly 5,800 (EUR 16.1bn) billion forints. But following Viktor Orbán’s meeting with EC President Ursula von der Leyen on Friday, it was revealed that Hungary would forgo the HUF 3,400 billion (EUR 9.1bn) credit line of the package, and only take the grants, worth HUF 2,500 billion (EUR 6.9bn). The government justified the decision by saying they want to restart the economy with the lowest possible foreign debt ratio. According to other opinions, however, the decision has more to do with the strict conditions the EU is imposing on the use of the loans, which would tie the government’s hands.

Last Friday, right before leaving for Brussels, Viktor Orbán gave an interview, saying that contrary to press reports, he was not going to meet Ursula von der Leyen to discuss financial issues because those were already ’settled.’

However, after the talks, in a Twitter post, the Commission President revealed that the issue of the Recovery and Resilience Facility (RRF) was in fact raised among several other important topics.

The next day, the prime minister’s chief of staff, Gergely Gulyás, announced that the government decided not to take the post-pandemic recovery fund’s credit loans of HUF 3,384 (EUR 9.1bn) billion and only apply for the HUF 2,511 billion (EUR 6.9bn) grants.

PMO Head: Hungary among First EU Members to Submit Recovery Plan
PMO Head: Hungary among First EU Members to Submit Recovery Plan

Hungary will be among the first countries of the European Union to submit their post-pandemic recovery plans to the European Commission, the head of the Prime Minister’s Office told MTI on Saturday. Gergely Gulyás said that Prime Minister Viktor Orbán had met Ursula von der Leyen, the president of the commission, on Friday, adding that […]Continue reading

The decision is somewhat surprising, especially considering the latest draft of the government’s original concept published in mid-April, in which they planned to make use of the full HUF 5,800 billion.

Gulyás also said that Hungary will submit a plan to the Commission that would only include the section about the grants.

The funds are planned to be used to cover Hungary’s “new healthcare system that eliminates gratuity payments,” and to raise the quality of healthcare nationwide. The grants will also support projects funded to reduce carbon emissions, and will also include the modernization of track-based transport, the boosting of higher education, and the transition to a circular economy.

However, the minister noted that since the RRF loan can be requested at any time until the end of 2023, the government would consider taking it out, should it be deemed necessary for certain specific projects.

Gulyás justified the government’s decision by saying that it does not want to increase Hungary’s public debt.

The official argument is weakened, however, by the fact that last year the government took out a total of HUF 2,300 billion (EUR 6.4bn) in foreign currency loans on much less favorable terms than the EU’s. In addition, the government is also expanding the Paks nuclear power plant from Russian loan and just struck a deal with China to build a Budapest campus of the Chinese Fudan University, mostly financed by Chinese loans.

Hungary's Planned Fudan University Budapest Location Faces Backlash
Hungary's Planned Fudan University Budapest Location Faces Backlash

The Hungarian government is working with a Chinese state-owned megacorporation to achieve one of the biggest investments in the last few decades of Hungary’s higher education; the creation of a Fudan University campus in Budapest’s IX. District. While the government believes the decision can only benefit the two countries, it has caused in uproar from […]Continue reading

Thus, many experts believe the reason for the decision is more likely the government’s unwillingness to a lengthy negotiation process and possible debate with the EU. Instead, it tries to get the ’easily accessible’ money of the recovery fund quickly so that the planned developments can start as soon as possible.

Sources with close insight on the issue mentioned some other possible factors to economic news site Portfolio.

The rather complicated final set of rules of the recovery fund could be another reason. It contains several constraints that would further delay the submission of Hungary’s plan, and also significantly tie the government’s hands when it comes to spending the money.

In addition, the interest saved on the favorable, low-interest EU loans could be easily offset by the resulting sharp price increase in the investment market.

An important political reason for the new scaled-down plan might be the government’s recent “privatization” of universities, according to liberal news site 444.hu (Only a day ago the government transferred half of all state universities in Hungary to asset management foundations, partly controlled by Fidesz.)

As the government is requesting much less funding from the EU for universities than in initial plans (totaling around HUF 1,000 billion), it is much less likely the Commission will hold the govt to account regarding this sensitive issue.

PM Orbán is “again trying to blackmail the European Union while holding Hungary to ransom,” according to Socialist (MSZP) MEP István Ujhelyi.

PM Orbán Seeking to 'Blackmail' EU, Socialist MEP Ujhelyi Says
PM Orbán Seeking to 'Blackmail' EU, Socialist MEP Ujhelyi Says

Prime Minister Viktor Orbán is “again trying to blackmail the European Union while holding Hungary to ransom”, Socialist (MSZP) MEP István Ujhelyi told an online press conference on Tuesday. Ujhelyi quoted Orbán as suggesting earlier that if the EU insisted on applying the rule of law mechanism and controlling details of Hungary’s using recovery funds […]Continue reading

Ujhelyi quoted Orbán as suggesting earlier that if the EU insisted on applying the rule of law mechanism and controlling details of Hungary’s use of recovery funds from the community, the Hungarian parliament could fail to pass legislation under which the country would grant its approval to other members’ obtaining community loans.

He noted that the bill had been tabled in parliament on April 8 and the assembly discussed the proposal, but a final vote was pending.

Hungary’s final plan is expected to be submitted within days, after which the Commission will have two months to review it and make a recommendation to the European Council on whether to adopt it.  Up to 13 percent of the approved budget for the programs can be drawn from in advance. This means that if the budget is accepted, a significant amount of money could be disbursed to Hungary by the second half of the year.

In the featured photo illustration: Prime Minister Viktor Orbán and EC president Ursula von der Leyen. Photo by Benko Vivien Cher/PM’s Press Office