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Commission proposes funding cut for Hungary but opens compromise path

The European Commission on Sunday proposed suspending 65 percent of funds allocated to Hungary under three EU programs over rule-of-law concerns, but also laid the ground for a possible compromise that would allow Budapest to keep the money.

“Today’s decision is a clear demonstration of the Commission’s resolve to protect the EU budget, and to use all tools at our disposal to ensure this important objective,” Budget Commissioner Johannes Hahn said in a statement following a meeting of the College of Commissioners.

For more than 12 years, Hungarian Prime Minister Viktor Orbán’s government has elicited criticism from watchdogs, civil society groups and European bodies for undermining checks and balances in the country. Critics point to the ruling party’s influence over the judiciary, control of much of the media landscape, and rampant corruption as key concerns.  

Brussels, however, has struggled to address Hungary’s rule-of-law problems. 

Officials have argued that the bloc’s rules give them few tools to tackle democratic backsliding in countries that are already EU members. In late 2020, with pressure growing for the EU to act, the bloc created a new mechanism that allows for the suspension of funds over systemic rule-of-law problems that impact European finances.

The Commission triggered the new mechanism against Hungary in April, with its inquiry focused on issues such as problems with public procurement and shortcomings in investigating corruption.

With Sunday’s decision, the Berlaymont is now formally moving the ball to the Council of the EU, which is the ultimate decision-maker. In a statement, the Commission said that it is proposing “a suspension of 65 percent of the commitments for three operational programs under cohesion policy” as well as “a prohibition to enter into legal commitments” with Hungary’s so-called public interest trusts.

Member states now have one month to decide whether to adopt the Commission’s suggestions, with the possibility of extending this period by two months. 

But while the Commission has recommended a suspension of part of Hungary’s funding, it has also been engaging in an extensive back-and-forth with the authorities in Budapest. Hungarian officials say that they can put new mechanisms in place to reduce corruption risks, and have put forward a variety of proposals on the matter.

“The Commission’s conclusion is that the proposed remedial measures could in principle address the issues at hand, if they are correctly detailed in relevant laws and rules, and implemented accordingly,” the Berlaymont said in its statement. “Pending the fulfilment of the key implementation steps,” it noted, “the Commission considers that a risk for the budget remains at this stage.” 

And while it is still unclear how some of the reforms would be implemented and whether they would be effective in curbing high-level corruption and reducing risks to the EU’s budget, the Commission has signalled that the Council could give Hungary time to show it is serious about the reforms — and thus a possible opportunity to keep its funds. 

“The Commission will monitor the situation and keep the Council informed of any relevant element which may have an effect on its present assessment,” it said.

Hungary, according to the Berlaymont, “has committed to fully inform the Commission about the fulfilment of the key implementation steps by 19 November.”

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