Hungary’s Deal Over the Rule of Law

This blog post was contributed by Dr Oana Ștefan, Module Convenor for EU law.

Hand giving money.

Another chapter in the EU rule of law backsliding saga unfolded in December 2022. On the 12th of December, a ‘deal’ was struck with Hungary on two points (which will be formalised later during the week). The EU approved with conditions the national plan of Hungary to access EU funding to tackle the economic crisis following the Pandemic (NextGenerationEU funding), whilst at the time suspending over six billion Euro under the EU conditionality regulation.

How did this happen and what does this mean?

First, what is NextGenerationEU? This is a recovery plan to allow the Member States to emerge from the pandemic. Essentially, we are talking about EU funding, gathered from the capital markets and given to the Member States in the form of grants. To access the money, the countries submit national recovery and resilience plans to the EU Commission, and the Council needs to give a green light for disbursements to be made. These plans need to comply with certain requirements, such as creating a greener, more digital and more competitive economy, and also have rule of law conditions. At the meeting on Monday, 12 December, the Committee of Permanent Representatives advised that the Council approves Hungary’s national plan. Hungary will be however required to fulfil some 27 ‘super milestones’ on institutional reforms and strengthening of the rule of law. If successful, Hungary will be able to use funds up to 5.8 billion Euro, but this is not yet a done deal.

Second, what is the conditionality regulation? The EU conditionality regulation 2020/2092 empowers the Commission to take a number of budgetary measures such as a suspension of payments in a situation where ‘breaches of the principles of the rule of law in a Member State affect or seriously risk affecting the sound financial management of the Union budget or the protection of the financial interests of the Union in a sufficiently direct way’ (Article 4). On the 12th of December, the ambassadors of EU member states recommended to the Council to adopt an implementing decision which will suspend, under the Conditionality Regulation, the granting of some 6.3 billion Euro to Hungary in cohesion funds. This comes on the background of a proposal from the Commission, in September, to take measures for the protection of the Union budget against breaches of rule of law in Hungary. The assessment included the existence of breaches to the rule of law, whether those breaches were affecting the financial management of the EU budget and the financial interests of the Union, whether Hungary took measures to address the situation, the absence of alternative procedures to protect the budget, and, finally, the proportionality of the measures proposed. Note that 6.3 billion only represent some 18% haircut compared to the total amount of funding Hungary was meant to receive, and some have argued that all funding should have been frozen.

These solutions are a compromise. Hungary has been for years now a concern from the point of view of the rule of law, with the European Parliament considering, in September 2022 that the country no longer was a democracy. Hungary was risking their NextGenerationEU funding, and, under the EU conditionality regulation, the initial freeze was set at 7.5 billion Euro. However, at the same time, Hungary was threatening to block essential measures, amongst others, EU help in the context of the war in Ukraine. As Hungary finally agreed to the plan to help Kyiv with 18 billion Euro, they also saw their NextGenerationEU funding unblocked (with conditions!) and the haircut under the conditionality regulation reduced. Time will tell if these measures will be efficient and if Hungary will stick to their promises of reform. However, all this leaves a bitter taste regarding the bargaining over, on the one hand, the rule of law on EU home ground and, on the other, the human rights of individuals caught in a war at EU’s doorsteps.

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