EU Budget Commissioner in Budapest, blocked EU funds may also be on agenda

The European Commission's Budget Commissioner Johannes Hahn is visiting Budapest on Tuesday. He is having meetings with

• Prime Minister Viktor Orbán,
• Finance Minister Mihály Varga,
• Justice Minister Judit Varga
• and Regional Development Minister Tibor Navracsics, who also leads the negotiations on EU funds.

The rule of law disputes that have prevented Hungary from receiving EU funds have still not been resolved between the government and the EU institutions, and the voluntary deadline of 31 March hasn't been met either, with the parties' mutual agreement to waive it.

The EU commissioner will be visiting the capitals of all member states to discuss a possible mid-term review of the EU budget, commission spokesman Balázs Ujvári said on Tuesday, but added

"of course we know that the context is a bit broader than that in the case of Hungary".

If members of the government also raise budgetary issues that are "relevant for Hungary", Johannes Hahn is a good mediator. (Later on, Judit Varga posted only that "We, Hungarians believe in constructive dialogue based on mutual understanding and we consider responsible management important".)

What is the debate about?

Due to an intertwined set of conditions, the EU funds which are currently being withheld from the Hungarian budget are:

1. almost all of the roughly €22 billion (more than 8,300 billion forints at current exchange rate) in catch-up funding that could be allocated through the government from 2021, without a co-payment;
2. the non-reimbursable part of the €5.8 billion reconstruction fund over and above the "normal" EU budget (the government decided in January to request a loan from the fund);
3. since mid-December, when member states took the decision, all public interest foundations and universities that have been converted into such foundatioins have been banned from entering into any grant contracts (commitments).

Public foundations are already beginning to run into problems

The third would be the government's most urgent task, as it concerns, among others, Horizon Europe research programs and Erasmus+ educational exchange programs. The ban will cause practical problems for the latter starting this summer, but for the former as early as this month, with HUF 5 billion set aside from the national budget to make up for the loss of Horizon funding. (For more on why Horizon Europe is more urgent than the "Erasmus case" and what the problem means here, see this article.

For the next calls for proposals, the decision on participation and the associated funding should be taken by mid-May, but

"It may be too late for that. There is a high chance that Hungarian researchers will be legally excluded."

– Johannes Hahn pointed out a few days before his visit to Budapest, according to Radio Free Europe. He told reporters in Brussels that the first half of May was the last deadline for adopting the relevant Hungarian legislation.

"I am extremely worried that we are running out of time and Hungarian students will miss the next winter semester of the Erasmus program."

– the Commissioner said concerning the program which supports student and teacher exchanges.

The Austrian politician wondered why the Hungarian government wasn't taking the necessary measures to unblock the blocked EU funds.

According to him, if the funding contracts are not signed by the beginning of July, the participation of Hungarian students and teachers from foundation-run universities in the Erasmus+ program will be at risk beginning in the second half of the year.

This means that the necessary legislation should be in place by the first half of May at the latest, as the laws have to be approved by the European Commission, and then by the finance ministers of EU member states within two months.

In case of Horizon Europe for Research and Development, applications are open on a continuous basis, but since mid-December last year, successful applicants have been barred from signing grant contracts because Hungarian foundations pose a "serious risk" to the EU budget, according to member state ministers.

The European Commission has identified problems which present a conflict of interest as well as issues with public procurements. Government ministers have resigned from the boards of trustees of these foundations, but the EU body still isn't satisfied. It has called for the exclusion of anyone involved in deciding on EU funds, as well as limiting the lenth of board membership.

They are moving ahead with the most high-value condition, but nothing is final yet

In addition, the government seems to be focusing on the most money-worthy judicial reforms, which will require

• strengthening the role and powers of the National Judicial Council (Országos Bírói Tanács-OBT), which holds independent judicial oversight powers over the judiciary;
• the independence of Curia judges – formerly the Supreme Court – to protect them from political interference.
• the possibility for the authorities to challenge final judgments in the Constitutional Court to be abolished, and
• obstacles to be removed for Hungarian judges referring cases to the ECJ if they consider that Hungarian and EU law are not in line – the EU Court of Justice having previously ruled that the existence of such obstacles was a violation of EU law.

This "horizontal conditionality" alone almost completely blocks €22 billion in cohesion funding. Although part of the money cannot be paid out to the budget for other reasons, the agreement could free up €13 billion (roughly 4,900 billion forints), according to Népszava.

Judicial conditions also account for four of the 27 "milestones" blocking payments of the reimbursable part of the recovery fund.

On 24 April, Justice Minister Judit Varga announced that a technical agreement had been reached between the Hungarian government and the European Commission on the justice package, but it still has to be approved by the full EU body.

The EU body's spokesman Christian Wigand was much more cautious that day. He confirmed only that technical talks were "progressing well", that Judit Varga and Justice Commissioner Didier Reynders had held a "constructive discussion" and that the European Commission would analyse the situation, but would not comment on ongoing developments. EU officials were unwilling to give any specifics to Politico's Tuesday newsletter (even anonymously), saying they want to see the law passed first.