The EU Council has three months to decide on the European Commission’s proposal to deprive Hungary of €7.5 billion in EU funding under the cohesion policy.
The European Commission proposed, on Sunday 18 September, to trigger the first stage of the Conditionality Regulation for the protection of the EU budget against Hungary (see EUROPE 13022/23).
The Commission considers that a risk for the budget remains at this stage. It highlighted “irregularities” and “shortcomings” in Hungarian public procurement procedures, the “abnormally” high proportion of single applications for these contracts, as well as the lack of control of conflicts of interest and of prosecution in case of suspected fraud.
The European institution proposes the following measures:
- a suspension of 65% of the commitments for three operational programs under cohesion policy which represents €7.5 billion or one third of the 2021-2027 structural funds planned for the country;
- a prohibition to enter into legal commitments with the public interest trusts for programmes implemented in direct and indirect management.
“ Powerful” effect. The EU Council, acting by a qualified majority of Member States, now has one month to decide whether to adopt the proposed measures. This period may be extended by up to two months in exceptional circumstances.
A qualified majority is reached in the EU Council if two conditions are met: 55% of Member States voted in favour (15 out of 27) and the proposal is supported by Member States representing at least 65% of the total EU population.
The EU ‘Economic and Financial Affairs’ Council (Ecofin) will decide on the proposal by December at the latest, an EU diplomat said on Monday 19 September. Qualified majority voting is “possible”, the source said, adding that the EU Council will want to check whether Hungary is proceeding with reforms.
According to a European source, this text has a “powerful” effect, because the risk of sanctions is strong enough for the country to undertake important reforms. The aim of the regulation is not to sanction for the sake of sanctioning, but to ensure that there are no financial risks for the EU. It will be necessary to verify that Hungary implements the reforms correctly, the diplomat concluded.
The proposal follows the Commission’s letter to Hungary (see EUROPE 12940/14), in which the Commission outlined the measures it intended to propose to the EU Council, and the remedies presented by Hungary in the letter of 22 August (and clarifications provided in a letter of 13 September) (see EUROPE 13005/10).
The Commission has carefully examined Hungary’s response, checking in particular whether the remedial measures adequately address the Commission’s initial findings.
The measures would be considered satisfactory if they put an end to the breaches of the principles of the Rule of law and/or to the risks that these breaches generate for the EU budget and for the EU’s financial interests.
An open exit door. “It is right to give ourselves some time to really see the concrete results” of these reforms, said the EU Commissioner for Budget, Johannes Hahn, claiming that they could be a “game changer”. The Commission will reassess the situation on 19 November.
Mr Hahn recalled that “this case (had) started when the Commission (had) notified Hungary in April this year of our concerns about violations of the Rule of law which create a risk for the EU budget” (see EUROPE 13005/10).
Over the summer, Hungary committed to 17 remedial measures to address the risks to the EU budget. “These are detailed and assessed in the communication we just adopted”, explained Mr Hahn.
“With these measures, Hungary has made important and public commitments in the right direction. And I would like to explicitly welcome this constructive engagement (even if at a late stage), but what counts is indeed the results”, the Commissioner pointed out. He cited: a new, independent ‘Integrity Authority' with extensive powers; an anti-corruption task force; the modification of the criminal code to allow judicial review of prosecutorial decisions; datamining and risk scoring ‘Arachne’ tool (which tracks who receives what EU funding); and the reform of the asset declaration system for high profile public officials.
“To consider these remedial measures to be adequate, the Commission needs to be able to conclude that they will put an end to the identified risks for the EU budget and EU financial interest”, Mr Hahn explained.
“Our conclusion is that the proposed remedial measures could in principle be capable of addressing the issues described in the notification, if they are correctly specified in relevant laws and rules, and implemented accordingly”, the Commissioner for Budget summarised. The Commission will still need to assess how the key elements of these reforms will be reflected in the legal texts.
“We do not take these commitments at face value. Otherwise, we would not have taken today’s decision”, explained an EU official on 18 September.
Completing the work. Hungary has announced that it will quickly set up an independent anti-corruption authority to monitor the use of EU funds and has pledged to improve transparency in public procurement. Measures are to be taken to enable citizens to bring complaints to court if they believe that the prosecution has arbitrarily terminated a corruption investigation. The transparency of the legislative process must also be strengthened.
Prime Minister Viktor Orbán’s government has indicated that laws to satisfy the EU will be submitted to the Hungarian parliament starting Monday 19 September. They are expected to enter into force in November.
“We are moving in the right direction. We still have work to do (...) so that the Hungarian people receive the resources to which they are entitled”, reacted the Hungarian Minister of Justice, Judit Varga, who toured several European capitals to advocate for her country’s case.
Budapest is struggling to escape the cut-off, but also to convince the Commission to release funds from the Next Generation EU Recovery Plan (€5.8 billion in subsidies). If the Hungarian recovery plan is not agreed by the end of 2022, 70% of the subsidies will be lost.
Poland on the side of Hungary. “Poland will strongly oppose any actions of European institutions that intend to illegally deprive any member states of funds, in this case Hungary”, the Polish prime minister said on Sunday.
The Commission has not yet formally initiated proceedings against Poland under this regulation.
Reactions in European Parliament. Manuel Fernandes (EPP, Portuguese) told EUROPE that “respect for the Rule of law is not an option, it is an obligation”. He said he hoped that the Member States would not block the Commission’s proposal. “The EU Council must decide without delay. One should remember that only a qualified majority is required for the Commission’s proposal to be approved. So now we will find out who is really defending the Rule of law”, Mr Fernandes stressed.
“Seven to eight billion euros is not nothing”, said the Parliament’s rapporteur on the dossier, Petri Sarvamaa (EPP, Finnish). He said the measures proposed by the Commission were “a step in the right direction”.
“But I would have liked an even stricter line on requirements. The real question is how the Commission will ensure that the measures will be effectively implemented in the Hungarian system and whether the risk of misuse of EU funds decreases”, he added.
“Unimpressed” by what the Commission has proposed, Daniel Freund (Greens/EFA, German) noted that “80% of EU payments will continue to flow unimpeded into Hungary”, which means “€27 billion (will) continue to flow into Mr Orbán's corrupt system”. He criticised the Commission for using this budgetary mechanism too late and too timidly.
Members of the Committee on Regional Development expressed concern that local and regional authorities would be unfairly penalised if the mechanism was activated (see EUROPE 13022/5). Younous Omarjee (GUE/NGL, French), chair of the committee, said that the EU “is not a window which one can pass through unconditionally”.
Link to the proposal: https://aeur.eu/f/355 (Original version in French by Lionel Changeur, with Hélène Seynaeve)