EC approves 22 billion euros for Hungary, but with strict conditions

The European Commission has approved the Hungarian Partnership Agreement and the Operational Programmes. The former outlines in broad terms how the government would spend the €22 billion (nearly 9,000 billion forints) in cohesion funds for Hungary from the 2021-2027 EU budget, while the operational programmes detail this by major themes and objectives.

The approval is a very important step towards spending the money and ensuring that Hungary doesn't lose some of it for good in 2022, but the government is still unable to access a significant portion of it.

This is due in part to the fact that last week, with Hungary and Poland voting against it, member states expressed with their votes that the rule of law in Hungary is being violated, which also puts the spending of EU budget funds at risk. The decision froze 55% of three operational programmes, worth some 2,600 billion forints.

The freeze, however, had little practical significance, because until then, not only the operational programmes had not been agreed on, but not even the partnership contract, so no funding came from this source. Even after that, the partial freeze is not a big problem for some time, because most of the funds that can be spent over seven (plus two) years are typically drawn down towards the end of the budget period. (First, the tenders have to be invited, the documents received processed and the winners announced, and then the invoices have to be submitted after the developments have been implemented.)

However, a big part of the payments have now been made subject to additional conditions, because the spending of cohesion funds has to take into account so-called horizontal principles.

These ensure respect for fundamental rights and the EU Charter of Fundamental Rights and the prevention of "any discrimination based on sex, racial or ethnic origin, religion or belief, disability, age or sexual orientation".

According to the European Commission, the serious risks related to

• "the provisions of Hungary's so-called Child Protection Act and
• the freedom of academic life
• and the right to asylum

have a tangible and direct impact on compliance with the Charter in the implementation of three cohesion programmes as well as some specific objectives of the Asylum, Migration and Integration Fund." As a fourth condition, The EU institution also mentions the deficiencies of judicial independence. "For these reasons

Hungary does not currently fulfil the horizontal condition of eligibility under the Charter of Fundamental Rights of the European Union for the relevant parts of these programmes."

According to the European Commission, "the rules applicable to the Cohesion and Home Affairs Funds, i.e. the Common Provisions Regulation

in the event of non-compliance with the eligibility criteria, the Commission cannot reimburse the expenditure concerned, with the exception of technical assistance and the spending submitted related to compliance with the eligibility criteria".

Tibor Navracsics put it this way: "with the agreement 130 billion forints in advance payment could be received, we can start tendering and can launch the developments that will be support by EU funds". He did not mention the payments which could not be made because of horizontal conditions.

According to the Hungarian Minister for Regional Development, "we have reached our goal: by the end of the year we will have signed all the agreements with the European Commission that will allow access to EU funds". In addition to all those who supported our work and those who prepared the technical documentation, he thanked the reviewers because "they encouraged us to do better".

Former MEP Benedek Jávor wrote earlier that if no agreement had been reached by the end of the year, around HUF 500 billion of funding (a quarter of the 2021 envelope and all 2022 payments) could have been lost for good. European Commissioners usually meet on Wednesday, and this week is the last before the Christmas and New Year holidays, so if they had wanted to make a decision this year, this was effectively their last chance.

The urgency is reflected in the fact that the European Commission has adopted the Partnership Agreement and the seven operational programmes at the same time, in a departure from its usual procedure.

Hungary will also receive EU funding from other sources, but most of this is cohesion funds from the previous budget period, which will be paid out until the end of 2023. At a background briefing weeks ago, Szabolcs Ágostházy, the state secretary for EU development, said that roughly half of the EU funding expected next year, estimated at around €7 billion (more than 2,800 billion forints), would come from this source. Agricultural subsidies, which make up more than a third of the EU budget, are also unaffected by the controversy. The current programme was agreed on in November, but until then the rules of the previous period remained in place.

What funds have been discussed in recent weeks?

It is difficult to follow the discussions between the EU institutions and the Hungarian government because there are different sources of funds and procedures with different rules and institutional roles, and in addition, new instruments have emerged.

If a Member State breaks EU law, the European Commission can start infringement procedures. This starts with a back-and-forth correspondence with the government. If they can't agree, the case ends up in the European Court of Justice, which can result in a fine. One such case is the aforementioned law lumping gays together with paedophilia, which went to court on Tuesday. The disadvantage of this method is that it is slow and difficult to deal with when there are systemic problems with the rule of law rather than isolated cases.

This would be the purpose of the "Article 7" rule of law procedure, but it is also lengthy – there are no deadlines attached – and requires unanimity on one point, so two governments can easily defend each other. This is exactly what the Hungarian and Polish leaderships have done, so despite the fact that proceedings have been launched against both of them, member states are reluctantly tinkering with the issue and are not really in the mood either to stop or to move on.

The conditionality (rule of law) mechanism adopted two years ago addresses both problems: deadlines for procedural steps have been set and decisions are taken by a qualified majority (at least 55% of member states, representing 65% of the EU population) rather than unanimity. But the procedure can only deal with issues that also affect the EU budget.

The mechanism has so far been launched only against the Hungarian government, and despite the Polish no vote, all other member states except Hungary and Poland have said yes to freezing 55% of three operational programmes. The European Commission proposed an even higher rate of 65%, which the Hungarian government tried to reduce with 17 commitments, but the body said the promised measures were not properly implemented.

The European Commission and the member states can also act through a recovery fund set up on top of the one-off 'ordinary' budget. Here, payments are linked to 27 "super milestones", including 17 points of the rule of law mechanism and issues such as the independence of the judiciary.

Now, the EU institution also connected these promised judicial reforms with the payment of cohesion funds because it believes these steps to be necessary to conform to horizontal conditions.