Hungary and EU move towards agreement – ​​POLITICO

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Mujtaba Rahman is the head of the Europe practice of Eurasia Group and a journalist for POLITICO Europe. He tweets at @Mij_Europe.

Hungary’s relationship with the European Union – never easy under Mercurial Prime Minister Viktor Orbán – has been particularly strained this year, given the country’s opposition to sanctions against Russia, lingering concerns over the state of law and the decision of Brussels to retain funding equivalent to 8.5%. of the country’s GDP.

Still, the two sides may well be on the verge of a deal that could unfreeze relations and ultimately see the release of much of the funding Hungary is now owed.

Orbán is now showing some ostensible will to start addressing some of Brussels’ concerns about corruption and the rule of law — at least on paper.

And the reason is the booming Hungarian economy.

Markets are nervous after the title inflation jumped to 20.1% in September, compared to 15.6% the previous month. And even more worryingly, core inflation – excluding rising energy prices – stood at 20.7%.

The government is clearly worried and has cut spending, limiting the temperature in state institutions to 18 degrees Celsius this winter and even imposing deep spending cuts in the Prime Minister’s office.

But with unions now demanding an increase of at least 16% in the minimum wage for 2023, as well as growing and unprecedented protests from frustrated teachers and kindergarten staff, Hungary’s inflationary spiral is set to continue.

All of this is putting increasing pressure on Orbán to comply — or at least appear to comply — with the European Commission’s requirements for rule of law and anti-corruption measures as soon as possible, in order to release funds. likely to positively boost investor confidence and improve the gloomy outlook for the economy.

Negotiations between the two parties are now very intense.

The talks have two separate legal strands – one relating to the steps Orbán must take to release 14.9 billion euros in the form of grants and subsidized loans from the Recovery and Resilience Facility (RRF), and the other relating to the corrective measures that the government must take to satisfy, what is called in EU jargon , the “rule of law conditionality mechanism” to release 7.5 billion euros EU cohesion funds.

These will eventually form a political package, with the aim of serving a key political objective: protecting the financial interests of the EU budget and forcing Budapest to align more closely with the bloc’s treaties, norms and values. .

The Hungarian Fidesz government has until November 19 to respond to the 17 concerns raised by the Commission under its rule of law conditionality mechanism procedure and propose corrective measures to address them. Above all, the discussions between Brussels and Budapest concern the creation of a (supposedly) independent “integrity authority” charged with ensuring that EU money is not siphoned off by Orbán and his allies.

Hungarian Prime Minister Viktor Orban has shown some willingness to start addressing EU concerns over corruption and the rule of law | Francois Lenoir/AFP via Getty Images

The Commission then intends to use the Budapest set of proposals as the basis for the reform milestones that underpin the RRF; and Orbán will have to implement them if money from the block’s coffers is to be disbursed. However, once Orbán submits his plans, it will take at least three more months for Hungary to meet his targets, and a few more months to put in place all the operational and financial bureaucracy leading up to a disbursement – which makes all the money. real unlikely for Hungary until at least the middle of next year.

This point is essential, and it is often forgotten by critics who claim that Commission President Ursula von der Leyen is on the verge of signing a filthy compromise. Approving the reforms proposed by Orbán does not mean that European funds will immediately flow. On the contrary, a short-term agreement will only preserve Hungary’s theoretical access to FRR money, as 70% of the FRR funds to which Hungary is entitled would be lost if no agreement in principle is reached. here the end of the year.

Of course, broader considerations are also at play, such as geopolitics: the EU still wants to project a sense of unity on Ukraine, and Orbán’s support will always be needed in this regard, whether he is whether to finalize the bloc’s partial embargo on Russian oil or the possible need to implement other energy-related sanctions in the future. Already a proxy for Russian influence, senior officials fear a tough line on EU money could bring him closer to Russian President Vladimir Putin.

Given the state of the Hungarian economy, officials are also not ruling out a financial crisis. As one senior official put it: “Even if we don’t pay them, we are still stuck with them, with no money and with a financial crisis. The alternative isn’t much better.

But some member countries are likely to oppose Hungary’s reform plans no matter what Budapest commits to, so annoyed they are by Orbán’s ambivalent stance on Ukraine and his spoiler tactics on d other EU policies as well.

Officials also remain deeply suspicious of his infamous “peacock dance” with the EU. Despite commitments made by the Hungarian government, officials in Brussels are far from naïve and acknowledge that the country’s leader will continue to implement backdoor measures to ensure insiders have legal access to state wealth.

Nonetheless, it seems likely that the EU’s conditionality mechanism will soon expire and Orbán will, in principle, secure approval for his stimulus reform plans. Although this will slightly ease relations between the two parties, it remains to be seen whether this will actually result in a flow of money to Budapest.