The European Commission decided on Wednesday 30 November to maintain the measures proposed in mid-September to suspend €7.5 billion of EU cohesion funds for Hungary (see EUROPE 13024/9), on the grounds that the country does not respect the principles of the Rule of law.
At the same time, the EU institution decided to validate Hungary’s post-Covid-19 recovery plan with €5.8 billion in grants only. The plan includes 27 ‘super milestones’, which include the 17 ‘anti-corruption’ measures identified in the Rule of Law Regulation and reforms to improve judicial independence. As long as these super milestones are not fully implemented, the first tranche of €800 million in aid will not be paid out.
The Commission is therefore maintaining strong pressure on the Hungarian government, moving to a new stage in the procedure foreseen in the regulation (2020/2092) introducing a general regime of conditionality for the protection of the EU budget.
Although a number of reforms have been undertaken or are underway, Hungary had not fully and adequately implemented the 17 necessary remedial measures agreed under the conditionality mechanism by the 19 November deadline, as it had committed to do, the Commission says in its assessment. These measures relate in particular to the effectiveness of the newly established Integrity Authority and the procedure for judicial review of prosecutors’ decisions.
The EU Commissioner for Budget, Johannes Hahn, told the press that the Commission has concluded that the conditions for the application of the regulation remain and that further essential steps will be needed to eliminate remaining risks for the EU budget in Hungary.
As a result, the EU institution decided to maintain its initial proposal to “suspend 65% of the commitments for three operational programmes under cohesion policy, amounting to €7.5 billion”, said Mr Hahn. The Commission also stands by its proposal that no legal commitments can be entered into with any public interest trust, the Commissioner added.
In a Communication, the Commission identifies “significant weaknesses” in relation to which Hungary has not made the necessary changes to the relevant legal texts to ensure that the measures are adequate under the Conditionality Regulation. These include the following: - the possibility that the Integrity Authority does not automatically retain its competences when a project is withdrawn from EU funding; - weaknesses in the system of judicial review of contracting authorities’ decisions, which do not follow the recommendations of the Integrity Authority; - weaknesses in the procedure for dismissing members of the Integrity Authority.
“Hungary has not, unfortunately, implemented the remedial measures, which does not allow us to say that the identified risks have disappeared”, summarised Mr Hahn. However, he acknowledged that the measures taken in a very short time by the ‘Orbán’ government were “in the right direction”. “One can already conclude that the conditionality regulation was the right tool to use. We have obtained commitments to reform that we could never have obtained without this regulation”, he added.
If the EU Council were to adopt the proposed EU budget protection measures by the required qualified majority, “we will follow the process, the idea being to lift the measures as soon as possible, once the problems have been solved”, Mr Hahn continued.
The EU Council will now have until 19 December to decide on the issue, as a qualified majority of Member States is needed for the suspension of funds to enter into force. The EU Council may also amend or reject the Commission’s proposal.
Link to the Commission’s Communication on the remedial measures notified by Hungary under Regulation 2020/2092 for the protection of the Union budget: https://aeur.eu/f/4cx
A reform-oriented Hungarian recovery plan
Unlike the Polish recovery plan in June, the College of Commissioners took a consensus decision to approve the Hungarian plan that Budapest had officially transmitted in May.
This consensus is partly due to the fact that the procedures of the ‘Rule of law’ regulation and the Hungarian recovery plan are moving forward in parallel and that specific judicial reforms have been introduced in the 27 super milestones, the EU Commissioner for Justice, Didier Reynders, who voted against the adoption of the Polish recovery plan, told EUROPE.
However, contrary to the practice of approving the other 26 national plans, Commission President Ursula von der Leyen will not travel to Budapest to pass on this positive assessment.
The EU institution gives a very positive assessment of the Hungarian recovery plan which, it notes, foresees mobilising 48% of its allocation for the climate transition, with a focus on reducing fossil fuel dependency and renewable energy production, and almost 30% for the digital transition.
“We have a solid programme of reforms and investments. When carried out, it should bring about positive change in Hungary, create jobs and growth and make the Hungarian economy more inclusive and resilient”, said Executive Vice-President Valdis Dombrovskis.
According to a European official, the Hungarian plan is one of the most reform-oriented national plans, not least because it incorporates the reforms required under the ‘Rule of Law’ regulation. Its ‘social’ component is substantial, taking into account the attractiveness of the teaching profession, while students and teachers regularly demonstrate in Hungary.
In the judicial field, four major reforms are planned: - increase the resources, powers and independence of the National Judicial Council; - revise the functioning of the Hungarian Supreme Court, with the introduction of a mandate for the president, who should be a judge; - remove the possibility for the Hungarian Constitutional Court to review judicial decisions at the request of public authorities; - remove the possibility for the Supreme Court to review preliminary questions referred by Hungarian judges to the Court of Justice of the EU.
Mr Reynders assured that the Commission would be “very vigilant” in monitoring these “time-bound” reforms, with the 27 super milestones to be achieved by the end of the first quarter of 2023.
If this positive scenario materialises, two decisions would be taken in parallel next spring, after a double analysis by the Commission, to release the first tranche of aid under the Hungarian plan and to suspend the procedure of the ‘Rule of Law’ regulation.
The ball is in the EU Council’s court
It is now up to the EU Council to take political decisions on this thorny issue, by 30 December at the latest, for the Hungarian recovery plan.
Initial discussions will take place on Thursday afternoon at the level of the Member States’ ambassadors to the EU (Coreper) in order to determine whether these two dossiers will be included on the agenda of the Ecofin Council on Tuesday 6 December. If this is the case, two other dossiers - macrofinancial assistance to Ukraine for 2023 and the ‘minimum taxation of multinationals’ directive - should also be on the agenda of the European ministers of finance.
This is the scenario favoured at this stage by the Czech Presidency of the EU Council, according to our information.
If there is not enough time for Member States to examine all the texts, an extraordinary Ecofin Council meeting could be called, unless Hungarian Prime Minister Viktor Orbán decides to activate the ‘emergency brake’ in the ’Rule of Law’ regulation so that these issues can be addressed at the European Council on Thursday 15 and Friday 16 December.
On Wednesday, Hungary’s Minister for Regional Development, Tibor Navracsics, said the Commission’s announcements were “not a big surprise” compared to its position expressed in mid-September. The Hungarian recovery plan has been praised as “one of the best” national plans, the former EU commissioner also said, assuring via Twitter that his country would meet “the remaining commitments” as precisely as it has done so far.
See the proposal for a decision approving the Hungarian plan: https://aeur.eu/f/4dm
Its annex: https://aeur.eu/f/4do
And the Commission’s working document: https://aeur.eu/f/4DN (Original version in French by Lionel Changeur and Mathieu Bion)