Hungary’s EU cash at risk after European Commission concludes reforms fell short

Brussels has been withholding billions in funds from Budapest as leverage as it tries to halt what it sees as democratic backsliding.

Hungary has failed to adopt promised rule-of-law reforms, the European Commission decided Wednesday, putting billions in EU cash in jeopardy for the country.

The determination comes as Brussels wrangles with Viktor Orbán’s government over the release of both €7.5 billion in regular EU payouts and €5.8 billion in pandemic recovery grants — money the EU has temporarily frozen over democratic backsliding concerns in Hungary.

While the Commission on Wednesday recommended approving Hungary’s plan to spend its recovery funds, it was clear that the country would not actually get the money until it implements 27 specific rule-of-law upgrades.

Meanwhile, the Commission also concluded that Hungary had fallen short in fulfilling a prior pledge to adopt 17 rule-of-law reforms that are needed to access the €7.5 billion in EU funds, which are being held up under a mechanism allowing the EU to freeze funds at risk of graft.

EU countries will decide whether to adopt, amend or reject the Commission’s judgment by December 19.

The move comes as something of a surprise. As recently as last week, it was expected that Brussels and Budapest would be able to come to an agreement on releasing the money. But the decision reached Wednesday appears to be a bit more nuanced — greenlighting a spending plan but not the money, chiding Hungary for not living up to its prior promises and essentially punting it to EU countries to make a final call.

Commission President Ursula von der Leyen met with key commissioners Wednesday to finalize this path forward. Their recommendation will need to be formalized next week by the entire College of Commissioners.

The Commission on Wednesday was particularly critical of Hungary’s new “integrity authority," questioning its power and independence, as well as Budapest’s progress on commitments regarding asset declaration rules and the ability to review a prosecutor’s decision on whether to pursue a case.

Brussels also set out a new slate of 27 reforms, or “super milestones,” that Hungary must enact to receive its €5.8 billion in pandemic recovery funds. Included in the 27 reforms are the prior 17 commitments the two sides agreed to in their talks over preserving the €7.5 billion. Other conditions include the fulfillment of Hungary's pledged judicial reforms, as well as adopting rules on auditing and reporting on EU funds.

After the Commission formally adopts its decisions next week, it will be up to the Council of the EU to support or reject them by a qualified majority — comprising 55 percent of countries and 65 percent of the EU’s population — which should happen at a finance ministers meeting.

The exact date of that meeting is still unclear, as the one originally scheduled for December 6 may be too soon to allow countries to go through national parliamentary procedures. Thus the Czech presidency of the Council may schedule another ministerial meeting later in December.

Approval of Hungary's plan and related cash is crucial to a number of top EU priorities, including an €18 billion aid package for Ukraine and a global deal on a minimum corporate tax rate, all of which Hungary has been blocking.