If the European Union really wants to protect its financial interests, it should no longer pay a single penny of its budget to Hungary. This is the stunning conclusion of a study carried out by three eminent experts in European law, Kim Lane, Daniel Kelemen and John Morijn, at the request of the German MEP for the Greens, Daniel Freund. Made public this Wednesday morning, this analysis answers a very sensitive question which it will be up to the Commission to resolve, after having decided on April 27 to activate the so-called “conditionality” mechanism against Budapest. This makes it possible to suspend the payment of European aid to a Member State where it is exposed to abuse due to violations of the rule of law. It is still necessary to determine the funds which are concerned and therefore the amount of which Hungary should be deprived in order to protect the European budget. According to this study, the calculation is however simple, in the light of the “systemic” drift in Hungary: “the suspension of 100% of European funds is necessary”.
Spoiler: there is actually zero chance that the Commission will propose in fine such a measure. Even less at a time when it seems to favor the maintenance of “unity” and therefore political harmony between the Twenty-seven, in the context of the war in Ukraine. However, cutting the floodgates for Budapest would not be so much a political decision as a literal reading of European law, according to Kim Lane, Daniel Kelemen and John Morijn, who respectively teach at Princeton University, of Rutgers and that of Groningen.
Abuse that lasts
Basically, several European financial instruments establish respect for the rule of law as a condition of their use and allow, if necessary, the EU to deprive the beneficiary country of it. In this sense, the “conditionality” mechanism, which entered into force on January 1, 2021 – and immediately challenged in court by Hungary and Poland (in vain) – did not invent this possibility, except that ‘it makes it possible to act upstream, when there is a risk of abuse, and in a more effective manner.
This regulation requires that the measures adopted be “proportionate” and “appropriate” to the aim sought: that of safeguarding European taxpayers’ money. Thus, “the nature, duration, gravity and extent of violations of the principles of the rule of law must be duly taken into account”, reads article 5 of the text. As such, Hungary was the first EU country to be described as an “electoral autocracy” by the V-Dem Research Institute, University of Gothenburg, and a “hybrid regime” by the NGO Freedom House. Coming to power in 2010, Prime Minister Viktor Orban’s Fidesz did not hesitate to carve out laws and even a tailor-made Constitution, at frenetic speed, thus creating an atmosphere of “legislative instability”, says the study. . The misuse of “states of emergency” – the latest was adopted in the context of the war in Ukraine – allowed Fidesz to rule by decree. Also, the party has given itself the power to exempt projects financed by public funds (including European funds) from certain regulatory constraints.
Multiple irregularities in the use of European funds
Added to this is a judicial system that has been weakened for a decade and therefore reluctant to tackle cases of corruption of European funds, which benefit those close to Viktor Orban. In March 2022, the Corruption Research Center Budapest noted that “political patronage is evident in the use of European funds. From 2011 to 2021, under the Orbán regime, “co-friend” companies have benefited from a large and growing share of EU subsidies. These 42 businesses owned by politically connected owners are among the largest recipients of EU grants.” Meanwhile, recommendations for prosecution made by the European Anti-Fraud Office (Olaf) are being ignored. Hungary is the Member State where Olaf has identified the most irregularities in the management of European funds.
Financial irregularities noted by the European Anti-Fraud Office (% of payments) Source: Olaf Report 2019, p.39
In conclusion, “all EU-funded programs are affected in one way or another by the comprehensive and cross-cutting nature of the violation of fundamental principles of the rule of law in Hungary”. Thus, believe the authors of the analysis, “it is impossible for the EU to isolate” the problem and therefore to suspend only certain types of aid. “All EU funds flow through the same corrupt pipes to Hungary to be distributed to final beneficiaries. And this flow through non-independent, arbitrary and non-transparent institutions in Hungary contaminates the way the funds can be used”.
The Commission is constantly kicking in touch when it is questioned on how certain European funds could be protected from abuse in a country where the independence of the judiciary is generally lacking. Its watchword is that it will be necessary to propose “proportionate” measures and to prove, in a concrete way, which threats weigh on which funds. Also, the “systemic” aspect of the drift in Hungary must, according to the Commission, be regulated via Article 7 of the EU Treaty. This procedure provided for in the event of a “serious and persistent violation” of EU values was launched against Budapest in 2018 at the request of the European Parliament, but it has been bogged down since, for lack of political will of the Twenty-seven to tackle to the problem.
Attempts to settle the matter politically
In other words: the European executive intends to limit the extent of the suspension of funds, just to mark the blow from a political point of view without really weighing down Hungary. And nothing says that he will go through with this procedure, the hope being to settle the problem in the meantime through political negotiations. At the moment, the Commission is still only at the stage of analyzing the response sent, on June 27, by Hungary to the decision to activate the “conditionality” mechanism. “We are ready for a discussion and an agreement!”, then declared on Twitter Judith Varga, Hungarian Minister of Justice. Several MEPs and NGOs fear that the Commission will content itself with a few signs of goodwill from Hungary to bring the process to a close. At the same time, discussions are even under way to give Budapest some homework to finally grant it access to European recovery funds, like what was done for Poland.
If the Commission finally decides to go ahead with the “conditionality” mechanism, its proposals to suspend European funds intended for Hungary will have to be approved by a qualified majority of the Twenty-seven – who also have the power to amend. Note that politically, the European executive cannot afford to accept a refusal on this subject, hence again the temptation not to put too radical measures on the table. In any case, it will take several months before Hungary actually risks losing (part of) its access to European funds, more than a decade after the first signs of a drift emerged in the country.