Brussels holds up Hungary’s recovery plan … but for how long?

The European Commission isn’t giving Hungary its seal of approval yet for €7.2 billion from the EU’s coronavirus recovery fund, due to concerns that Budapest’s spending plan doesn’t do enough to prevent corruption.

The Commission has until Monday to endorse Prime Minister Viktor Orbán’s plan, but Brussels won’t give the green light to the blueprint as it stands, officials and diplomats told POLITICO.

The Commission’s stance opens up a new front in battles between Brussels and Budapest, which have clashed over criticism of Hungary’s record on the rule of law, democracy and other core values as well as misuse of funds. Most recently, multiple EU leaders have condemned measures passed by the Hungarian parliament widely seen as discriminating against LGBTQ+ people.

But the recovery plan also presents the Commission with a dilemma, which raises the prospect that Brussels could still give its blessing fairly soon if it can point to some concessions from Budapest.

Politically, the outrage over the anti-LGBTQ+ measures and other contentious issues makes it difficult for Brussels to wave through billions for Budapest. At the same time, Commission officials know any substantial holdup may intensify criticism of the EU in Hungary, ahead of a general election next year. And some are also keen to keep concerns over the misuse of EU funds separate from the broader debate over core values and Hungary’s place in the union.

“The political climate is such that you’re not going to wire billions to Budapest without addressing massive flaws,” said an EU diplomat, adding: “They’re in a pickle.”

Despite growing pressure from national capitals and the European Parliament, the Commission has been reluctant to link the process of getting funds flowing in the bloc’s recovery facility with broader political issues. Last week, it endorsed Slovenia’s plan, despite Ljubljana having failed to appoint prosecutors to investigate the misuse of EU funds — a “huge risk,” according to the EU’s chief prosecutor.

Likewise, Brussels wants to keep things siloed with Hungary. “The assessment of Hungary’s recovery and resilience plan and the analysis of the Hungarian bill [that prohibits “promoting or portraying” homosexuality and transsexuality to minors] are two separate and parallel processes,” a Commission spokesperson said.

That evaluation of the Hungarian legislation — known as the Child Protection Act — is to see if it breaches the bloc’s single market rules on media and technology.

While Brussels won’t approve the Hungarian recovery plan by a July 12 deadline, the program will be able to gain the Commission’s backing later if Budapest makes some concessions, officials and diplomats said.

Brussels is still aiming to endorse the Hungarian plan — alongside those of the Czech Republic, Ireland and Poland — between July 16 and 19, according to a provisional schedule confirmed by EU diplomats and officials.

Separating the recovery funds from the debate over core EU values doesn’t sit well with governments and MEPs who have been vocally demanding that Brussels stand up to Budapest.

“Sending money to Budapest at the moment when a minority is clearly being persecuted by the government would be in clear contravention of Article 2,” said one diplomat, referring to the list of fundamental values enshrined in the EU treaties. Commission officials “just want to take the purely technocratic view of the process,” according to the diplomat.

In Budapest, Orbán’s chief of staff, Minister Gergely Gulyás, insisted at a press conference on Wednesday that negotiations with the Commission are continuing.

Justice Minister Judit Varga wrote on Facebook: “It is true that the Commission has formulated new demands since the adoption of the Child Protection Act! These demands are obviously related to the child protection regulations. Brussels cannot take away for any political reason what Hungarian people have worked for.”

Room for maneuver

The recovery fund’s rules require countries to address “all or a significant subset” of policy requests from Brussels, known as Country Specific Recommendations, as a precondition to get the money. One of Brussels’ requests to Hungary is to “reinforce the anti-corruption framework, including by improving prosecutorial efforts and access to public information, and strengthen judicial independence.” All countries must also set in place a monitoring system against “conflicts of interest, corruption and fraud and to avoid double funding.”

The plan submitted by Budapest, a copy of which was seen by POLITICO, acknowledges these concerns by pledging to upgrade the IT system of its prosecution service, reduce informal payments in the health sector, and cut the amount of non-competitive tenders by improving the public procurement process.

But it does little to address the root causes of the issue, critics argue. “There are major and growing challenges in the way of judicial independence, the government is expanding its grasp over the judiciary and there is a potential that individual cases which are sensitive for the administration will not in the future be adjudicated in an autonomous and independent manner,” said Miklos Ligeti, head of legal affairs at the NGO Transparency International Hungary. “This is a very complex issue and the recovery plan is not addressing it,” he added.

MEPs from the centrist Renew Europe group last week requested that the Commission “send the Hungarian government back to the drawing board” over concerns of misappropriation and misuse of funds in a country that famously used EU cash to build a 5.7-kilometer tourist railway and a soccer stadium near the prime minister’s hometown.

“We have to be sure before approval of the program that we have in place a solid anti-fraud and anti-corruption tools in Hungary. And we already know that this is not the case,” said Renew Europe leader Dacian CioloÈ™.

The extent to which Brussels will enter yet another confrontation with Budapest over the rule of law, using the funds as leverage, is unclear.

“There are a number of aspects … that are very relevant for the issue, such as the need to address corruption, the need to have better transparency in the decision-making process, and to have [an] efficient and effective justice system. ” Céline Gauer, director-general of the Commission task force in charge of assessing the recovery plans, said at a POLITICO event last week in response to a question on concerns about Hungary and the rule of law.

“Those elements we are checking, because it’s in the legal basis for us to check them,” she said.

“But this is really a rigorous and also a legal process because I think we should respect the rule of law and comply with what we preach,” she added, noting that countries “do not have to tackle all Country Specific Recommendations but a significant subset.”

That has been the case also for other EU countries — Luxembourg, for example, was able to avoid a tax reform, and Spain left the details of planned pension and labor reforms to be determined later.

But even if the Commission endorses Hungary’s plan with minor tweaks and passes the ball to EU member governments in the Council, it likely won’t receive kid-glove treatment from its peers.

Some countries, such as the so-called “frugals” that take a hawkish stance on EU spending and those with governments that stress the importance of liberal values, are expected to scrutinize Budapest’s plan closely.

“For the Netherlands, and the Frugals, it’s something big. And even for the others, it’s not indifferent. … Everyone’s curious to see what will happen,” said another EU diplomat.

Lili Bayer contributed reporting.

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