At the December summit, the European Union Commission made a controversial decision to unfreeze ten billion euros of EU subsidies for Hungary. This move held great significance for the Hungarian administration.
“This decision was a major victory for Hungarian Prime Minister Viktor Orbán. Thanks to the released funds, the government can continue its operations without worries for a few years,” informs Jóssef Péter Martin, the director of Transparency International’s Budapest office. However, around 20 billion euros of Hungary’s EU subsidies remain frozen.
The Commission justified its decision by stating that Hungary had implemented some of the required changes to the rule of law. “We have received enough assurances that the independence of the courts will be strengthened,” said the Commissioner for Justice, Didier Reynders.
“They made some reforms in a way that there were no longer any legal grounds for withholding the money. But Orbán is playing this game,” opines EU parliamentarian Petri Sarvamaa who describes the Commission’s decision as “catastrophic”.
Sarvamaa has played a critical role in the process of freezing Hungary’s EU subsidies. The Commission’s decision sparked widespread outrage in the EU Parliament, which even considered suing the Commission over the matter.
In Hungary, the parliament approved the disputed sovereignty law around the same time in December. This law established a new authority to oversee sovereignty, which is tasked with investigating foreign ties of companies and organizations such as the media or non-governmental organizations.
Many believe that this law violates EU standards, and the commission is already planning disciplinary measures against Hungary. “This is a typical move by Orbán’s government. When it bends in one direction, it acts against EU principles in another,” the report states.
“The recovery and cohesion funds will remain frozen”
Of the still-frozen 20 billion euros in subsidies for Hungary, more than five billion come from the post-corona recovery fund. Hungary did not meet the deadline to provide the EU with acceptable plans for the use of these funds by the end of 2022. Most of the subsidies have been frozen due to the country’s rule of law mechanism shortcomings.
“I don’t foresee any movement on these subsidies during this commission, but the matter will be at a standstill until the end of the year,” predicts Hungarian EU politics researcher Patrik Szicherle of the Globsec think tank.
Although Hungary will chair the EU from July, it will not have any influence over matters concerning EU subsidies. “The recovery and cohesion funds will remain frozen. Hungary cannot influence this as it is firmly cast in jurisprudence. Hungary had not made any of the required reforms the last time the matter was examined,” explains Sarvamaa.
The aid now released for Hungary is not earmarked, and the government can freely use the funds for various public projects. It has already announced numerous infrastructure projects related to the subsidies.
“As far as I know, they have only received a small part of the money,” says economist and professor Peter Mihályi of Corvin University. He believes that the government will now pay more attention to how subsidies are used.
“I think they will now pay more attention to not breaking the rules. But it’s still difficult to predict what the subsidies will be used for in the end,” states Mihályi. He also believes that the prime minister’s inner circle will not be as visibly involved in project implementation as before.
“I don’t think they want to escalate the conflict with the EU.”
A real problem
The EU elections in June are likely to strengthen far-right parties in Europe significantly. Orbán may find more acceptance for his policies, but this would not have immediate effects.
The aid granted to Hungary will alleviate its economic situation but will not resolve its problems. The country’s budget deficit exceeds five percent, and the subsidies will not significantly reduce it.
The Hungarian forint remains weak, and the news of the Commission’s decision did not strengthen it, indicating a limited effect on the economy.
“The real problem is whether the government is ready to reduce its consumption. And I don’t think they would do this,” says Mihályi.
The Orbán government has declared its goal is economic growth, for which it will take on more foreign debt.
The Hungarian situation
The EU Commission released 10.2 billion euros of Hungary’s frozen subsidies in December.
Approximately 20 billion euros of Hungary’s subsidies remain frozen.
The funds are strictly tied to both the rule of law and their intended use.
At the end of the year, Hungary’s budget deficit was 6.8 percent.
Inflation has dropped from around 10 percent a year ago to 5.5 percent.
A political crisis has erupted in the country. Hungary’s president and justice minister resigned at the beginning of February. The president was a former government minister, and the justice minister was the top candidate for the upcoming EU elections.
