Hungary: Commission officially launches procedure linking bloc funds to rule of law

The European Commission has launched an administrative procedure against Hungary because of long-standing concerns over persistent misuse of EU funds in the country, the institution announced on Wednesday (27 April).

The procedure is based on the principle that the disbursement of EU funds is conditional on respect for principles of rule of law and could see countries with systemic problems lose out on funding.

The procedure, which the Commission predicts could take between five and nine months, will include two rounds of consultations with Budapest, a process described as “collaborative” by EU officials.

“We hope to reach an agreement and have the [national] measures in place correcting the situation without need” to impose them from Brussels, an EU official said.

If talks go nowhere, the Commission may come up with proportionate “administrative remedial measures”, which it insists are not punitive sanctions, to protect the bloc budget.

Other EU countries will then have up to three months to adopt or amend the Commission’s proposal with a qualified majority in the Council.

The Commission is concerned about public procurement in Hungary, the functioning of the authorities implementing the EU budget, audit, the monitoring and accountability process, to transparency, prevention of fraud, corruption.

Officials are also concerned by “the constant failure to implement the recommendations and the requests which have been addressed for more than 10 years to the authorities”.

Hungary last year topped the EU’s anti-fraud agency (OLAF) list for irregularities in the spending of structural and agricultural funds, where 2.2% of payments to Budapest were affected by graft concerns, seven times more than the EU average of 0.29%.

The Commission now said the exceptionally high level of financial collections over the years is compounded by concerns about “limits to effective investigation and independent prosecution.”

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The executive reasoned that …

Effects reaching into previous budget

The mechanism had posed a significant hurdle in negotiating the bloc’s next seven-year budget, worth €1.8 trillion, at the end of 2020.

The hard-fought compromise, under which Hungary and Poland agreed to unblock the budget, included an instruction from EU leaders to the Commission that any measures would not affect payments from the 2014-2020 budget.

The Commission now said the mechanism, which has been in force since 1 January 2021, can affect all payments made since then, which includes payments under the previous budget that will be continued to be made until 2023 under current rules.

Nevertheless, it acknowledged there were “conflicting messages that have been sent” on the issue of the scope but said the European Council “is empowered to make a political statement but they don’t change the legal situation”.

Yet, the Commission has followed through on other commitments it made following the same set of political instructions from EU leaders, known as Council conclusions, such as its controversial promise not to activate the procedure until the EU’s top court has ruled on its legality.

In a first-ever live broadcast of a decision, the European Court of Justice dismissed the legal challenge in February 2022.

EU top court quashes Hungary, Poland's challenge to rule of law tool

The EU’s top court dismissed on Wednesday (16 February) a legal challenge from Budapest and Warsaw to a recent EU law linking disbursement of bloc funds to rule of law standards, paving the way for the European Commission to launch proceedings against the two countries.

Despite detailed guidelines now put in place to govern the use of the mechanism by the Commission, officials refuse to speculate about how much payments could be affected.

“I’m totally unable to be a fortune teller and I would not venture into speculating about” the reply of Hungary to the letter, one EU official said.

Meanwhile, Hungary watchers worry that the Commission’s measures are a classic case of doing too little, too late.

The rule of law mechanism “is an important tool but will only be able to address one small part of the democratic backsliding in Hungary”, Green MEP Gwendoline Delbos-Corfield commented on the Commission’s move.

“Now that Fidesz [Hungary’s ruling party] has maintained their hold on power by strangling independent media and locking up the electoral system, urgent action from the Commission and Council is needed to prevent autocracy from spreading within the EU”, she added.

[Edited by Zoran Radosavljevic]

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