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Political Debate around Withheld EU Funds Rages On

Mariann Őry 2022.08.23.
EU funds

Hungary and Poland have yet to receive their share of the EU recovery fund. Many see political reasons behind this. The withholding of EU funds is also hurting Hungary’s credit rating.

The Hungarian government has sent its reply to the European Commission on the conditionality procedure, Justice Minister Varga Judit announced in a Facebook post on Monday.

“The reply was preceded by intensive consultations. In just one month, we held 10 video conferences and numerous meetings with the Commission while more than 100 draft measures have been circulated and discussed,” she noted. According to Varga, the government has put “a comprehensive package of measures on the table to address all the Commission’s concerns” and “remains open to a constructive dialogue with the Commission.”

It was only two days after the Fidesz-KDNP coalition’s fourth landslide victory in the Hungarian elections when Ursula von der Leyen announced that the European Commission planned to move on to the next step, and formally launch the rule of law conditionality mechanism “to protect the EU budget, mainly over corruption concerns.”

Gergely Gulyás, the Minister heading the Prime Minister’s Office, reacted in a Facebook video, accusing the Commission of wanting to punish Hungarian voters and of fulfilling the expectations of the Hungarian left-wing parties.

The Commission officially triggered the mechanism on April 27th. At the time, Politico predicted that the procedure can take months, and “could end with Hungary losing a significant amount of EU funds, with the decision ultimately up to the Council of the EU.” “Any funding reduction will need a ’qualified majority’ to pass — meaning support from at least 55 percent of EU countries representing at least 65 percent of the bloc’s population,” they added.

Rule of Law Mechanism Launched against Hungary
Rule of Law Mechanism Launched against Hungary

"We identified issues that might be breaching [the rule of law] in Hungary and affect the EU budget," said Vera Jourova, the Vice-President for Values and Transparency.Continue reading

Speaking at a press conference the next day, Gulyás said that in some areas there is room for compromise but the Commission made some absurd remarks, too. He noted that the government is ready to compromise even in the absurd questions, if their relevance is minimal.

Hungary’s supreme court (Kúria) said that the Commission’s objections as to how judges in Hungary are appointed “is not a rule-of-law issue since it has nothing to do with reality.”

Gulyás announced in July that the government accepts the recommendations of the Commission in four areas in order to speed up the agreement on the Recovery and Resilience Facility (RRF) funds (to this day, the Commission has not approved Hungary’s recovery plan, thus withholding the funds).

On July 20th, the European Commission sent a letter to the government indicating that they did not consider the corrective measures to be sufficient. They also informed Budapest of the financial measures, i.e. sanctions, they planned to propose to the Council of the EU. Hungary’s government had time until midnight of August 22nd to answer.

Whether the deadlock will be broken this year remains to be seen in the coming weeks. “The question of which areas will suffer the most from the loss of Brussels funds is not a valid one, as the government has decided that Hungary will finance EU programs from its own resources. So the shortfall is more a technical issue than a real economic one. It is a different matter that the continued inflow of EU funds would put the country’s financial balance on a more secure footing, not to mention the possibility of exchanging the inflow of euros for forints on the market, which could strengthen the domestic currency,” Péter Virovácz, macroeconomic analyst at ING Bank, told Index.

The withholding of RRF funds has also contributed to the fact that earlier this month, Standard & Poor’s Global Ratings affirmed Hungary’s ‘BBB’ sovereign rating, but revised the outlook to negative from stable at a scheduled review. “External risks, including potential cuts to EU funds and reduced gas flows, could weigh on Hungary’s growth prospects and endanger post-pandemic fiscal consolidation,” S&P wrote. However, the rating agency expects that the EU and Hungary will eventually agree on the funds.

The Center for Fundamental Rights (Alapjogokért Központ), a conservative think tank, says the government has once again shown its willingness to compromise. They say the procedure reflects the Commission’s double standards and its much more critical and biased approach towards Hungary. “Hungary is being attacked for standing up for national interests, for protecting Hungarian people, families, and children,” they wrote.

Poland, also a national-conservative-led country, has not yet received the EU funds it is entitled to either. The Polish government is blaming Germany for the fact that although the President of the European Commission has pledged support for Poland’s recovery plan, the country has still not received the money. Commenting on an article in German weekly Der Spiegel, Justice Minister Zbigniew Ziobro said that Ursula von der Leyen, as a prominent German politician, has clearly deceived the Polish government by imposing new conditions on the Polish recovery plan, which was previously approved after repeated consultations.

“Poland is being robbed, and German politics, German politicians with the German Von der Leyen at the helm, are playing a leading role in this,”

he said.

The Minister added that both Der Spiegel and Von der Leyen want to give the impression that EC Vice-President Vera Jourová is blocking the disbursement of funds.

Ziobro recalled that in December 2020, he warned Prime Minister Mateusz Morawiecki that “concessions to cynical German politicians have only brought stronger pressure and blackmail on Warsaw’s head.”

Featured photo via Miniszterelnök.hu/Miniszterelnöki Sajtóiroda/Benko Vivien Cher

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