EU Commission proposes suspending billions to Hungary

"No funds will flow until the 'essential milestones' are properly implemented," EU Commission vice-president Valdis Dombrovkis told reporters, referring to the EU jargon for the measures the commission is demanding.

The €5.8bn, which was allocated to Hungary under the EU's Covid-19 recovery fund and approved by the EU executive on Wednesday, will only be dispersed once Budapest fulfils the conditions.

In a separate procedure, a qualified majority of EU member states will have until 19 December to decide whether to in fact suspend the 65 percent of cohesions funds, another batch of EU money, estimated to be worth €7.5bn under the bloc's 2021-27 budget.

The commission is arguing that it approved the recovery fund so that it can maintain a leverage over Orbán's government to implement the reforms and strengthen the independence of Hungary's judiciary.

The recovery plan needed to be approved by the end of the year, otherwise Hungary would have lost 70 percent of those funds.

The €5.8bn of EU grants would is the equivalent to a 1.4 percent increase in GDP by 2025 for the country, which has been struggling with high inflation, increasing energy prices and a weakening forint currency.

Hungary's minister in charge of negotiations, Tibor Navracsics, said the suspension of funds did not come as a surprise.

Navracsics, a former EU commissioner himself, said on Wednesday he was confident that all measures will be fulfilled and money will be unblocked in 2023.

Meanwhile, promises and half-solutions by the Orbán government did not convince the commission, according to a group of Hungarian civil organisations, the anti-corruption K-Monitor, the Hungarian Helsinki Committee and Transparency International (TI) in a statement on Wednesday.

EU funds are withheld because the Budapest government "cannot credibly rebuild the rule of law and anti-corruption institutions with its weak promises". The NGOs said the required anti-corruption and rule-of-law measures are not a too high price to pay at all.

Unprecedented

The commission's move is unprecedented and makes use of a relatively new tool, the so-called 'conditionality mechanism', in the EU's arsenal of forcing EU governments to respect the rule of law and EU rules by suspending EU funds.

"This is an historic moment for the protection of the rule of law in Europe," centre-right Finnish MEP Petri Sarvamaa, who was a key negotiator for this new tool on behalf of the European Parliament, said.

Orbán has been undermining domestic judicial independence for over a decade and, critics say, misusing EU funds to prop up his supporters and political clientele.

The commission launched the mechanism against Hungary in April, a day after Orbán won his consecutive fourth term in office, and set out — in agreement with Budapest — 17 measures in September for Hungary to be able to unblock the €7.5bn EU funds.

The EU executive now said that Hungary has failed to implement the 17 measures fully, thus failing to remove the risk to the EU funds.

What's next?

On both funds, the EU governments will have the last say: the approval of the recovery fund will have to be given the green light by a simple majority of member states.

EU economy ministers will have to approve by qualified majority the commission's proposal on the suspension of cohesions funds, which could happen as soon as next Tuesday (6 December).

Hungary has been threatening to veto a joint EU financial assistance of €18bn to Ukraine and the EU's approval of global minimum tax — which also are slated to be approved next Tuesday.

EU governments want Hungary to blink first, and scrap the threat of veto. Orbán's government has argued that it will not budge as these are "principled" positions.

"It seems there is a correlation," EU budget commissioner Johannes Hahn said on Wednesday, adding that Hungary would only need to chip in €6m as part of the joint debt taken to finance the loan to Ukraine.

"I am very confident at the end of the day the problem will be resolved, but we always have a Plan B," Hahn said without going into detail.

What is expected?

EU justice commissioner Didier Reynders said on Wednesday that so-called "super milestones" on judicial independence "need to be fully met and implemented" before any payment is made under the recovery fund.

"No partial payment for partial fulfilment here," he said, adding that if reforms are watered down or undone later, the subsequent payments will also be undone.

Reynders, who as Belgian foreign minister drew up plans to link EU funds to the rule of law in the pasty ears, said if implemented, the milestones will bring "lasting and far-reaching" progress for the rule of law in Hungary.

As part of the commission's super milestones, Hungary will need to increase the powers of the National Judicial Council, elected by judges, to oversee the the administration of courts.

Hungary will also need to limit political influence on the Supreme Court, and no longer allow the Constitutional Court to review the final decision by judges upon the request by public authorities.

Hungary will also need to remove the possibility for the Supreme Court to review questions that Hungarian judges want to ask from the European Court of Judges (ECJ).

As part of the other 27 measures, Hungary still needs to reinforce its anti-corruption efforts, making the new Integrity Authority more capable of uncovering wrongdoings, and allow anyone to challenge in court the decisions of investigators or prosecutors not to investigate or prosecute fraud.

Orbán's government will also need to significantly increasing the amount of information required from public officials when making asset declarations, and improve competition in public procurement.

The first payment request is due at the end of March, but the commission will want to see a "full implementation" of the milestones.