JHE European Union has struggled for years to deal with corruption in Hungary, where the ruling party has filled the courts, and where state contracts tend to go to friends of Prime Minister Viktor Orban. It now seems to be getting serious. Since last year, the block has two powerful new tools. The first is its 750 billion euro ($750 billion) covid recovery fund, which requires each country’s spending plan to be certified by the European Commission. The second is a “conditionality mechanism” which allows it to block EU aid and demand reform.
Mr. Orban usually denounces EU complaints as interference by Brussels bureaucrats. But with billions of euros at stake, Hungary suddenly became interested in cooperating. In August, he proposed 17 reforms to comply with the conditionality mechanism. However, in September the EUThe budget commissioner has recommended that €7.5 billion in aid be suspended until Hungary shows progress. His request for 7.2 billion euros in covid recovery grants has not yet been approved. If it is not approved by the end of 2022, Hungary will lose 70% of this money. The plan and the reforms of the conditionality mechanism will be put to the vote at a meeting of the EU finance ministers (Ecofin) in December.
Hungary desperately needs money. The forint has fallen 24% against the euro since 2018. Inflation stands at 21%; worse, underlying inflation (excluding fuel and food) reached 22%. The government resorted to freezing the prices of potatoes, eggs and fuel, leading to shortages. It also caps the interest rate on deposits, to force depositors to buy the bonds it needs to finance its budget deficit of around 6% of the gdp. With a debt at more than 75% of GDPthe government will need its transfers from EU to avoid the worst when, as is likely, the economy goes into recession.
Rule of law experts say the proposed reforms are full of holes. The government has set up a new oversight body EU funds, but most of its members are close to the ruling party, Fidesz. Citizens will be able to appeal if prosecutors drop a corruption case, but they rarely bring such cases in the first place. The judges with whom Fidesz stuffed the Supreme Court will remain there. The president of the court, appointed and approved by Fidesz, controls which judges get which cases, so government officials generally get a friendly hearing. Moritz Körner, a German deputy who is one of the European Parliament’s rapporteurs on the matter, said letting the money flow could “irreversibly turn Hungary into a swamp of corruption”.
The Hungarian government counters that the European Parliament “has been taken hostage by loud and aggressive far-left activists”. Meanwhile, he blocks the EUrequest to borrow EUR 18 billion to help Ukraine, which all Member States must approve. The Hungarians say they oppose these loans because they themselves have not received any: the recovery fund consists of a common loan, but “we have not seen a single penny”.
They may have to wait a while. Next week, the commission is expected to tell Ecofin that Hungary has failed to meet its terms. It will recommend freezing the €7.5 billion under the conditionality mechanism and approving stimulus funding only conditionally, with 27 steps to be met before cash can flow. However, European leaders can relax these conditions: they obtain the final vote at a summit on December 19. ■