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The frustration stemming from Hungary’s disruptive behaviour within the European Union, its adoption of a multivectoral foreign policy, and its perceived geopolitical disloyalty have all contributed to the resolute stance of EU institutions and Member States in sanctioning Hungary for its rule of law shortcomings.

 

Dániel Hegedűs

September 22, 2023

 

Hungary’s relationship with the European Union institutions and its EU and NATO allies reached a historic low in the first half of 2023. This relationship has always been strained since Hungary’s domestic autocratization and multivectoral foreign policy matured to a noticeable challenge for Western partners in the early 2010s.

However, in 2022–2023, Russia’s war of aggression against Ukraine and its geopolitical ramifications coincided with both Hungary’s ever worsening rule of law and track record of corruption and the government’s inability to reform its multivectoral foreign policy and demonstrate geopolitical loyalty to the West.

The coincidence of these three factors was the key driver behind the Council’s decision in December 2022 to suspend Hungary’s cohesion funding worth €6.3bn, the first time in EU history that Member States stood-up and sanctioned one of their fellows because of fundamental rule of law shortcomings.

Two distinct conclusions can be drawn from these developments. First, there has never been greater political readiness among EU institutions and Member States to impose sanctions on Hungarian Prime Minister Viktor Orbán’s regime because of the breach of the rule of law and the level of organized, high-level corruption in the country.

Second, for Hungary’s fellow EU Member States, the primary driver behind that political readiness and political will is not necessarily the quality of the rule of law in the country, but rather the frustration with Hungary’s disruptive behaviour in the European Union, its multivectoral foreign policy, and geopolitical disloyalty.

 

Political dynamics and the enforcement of EU values: understanding the interplay

The second conclusion clearly underlines the existential role of politics in both enforcing European values and sanctioning any breached that can arise. As R. Daniel Kelemen convincingly argued, the lack of political will was a key obstacle in the 2010s that hampered European responses to Hungary’s autocratization.

There has been an undeniable surge since February 2022 in the political determination to sanction Hungary for its breach of the rule of law and pervasive political corruption. This shift in the political position of the Member States created an important window of opportunity for the European Commission to effectively deploy its available toolkit in the protection of the rule of law and the EU’s financial interest in Hungary.

While the rule of law and geopolitics might be two distant and unrelated areas in the eyes of the European Commission, in the context of the war in Europe, they are interrelated in terms of the political support of the Member States for the Commission’s actions. The mounting criticism of EU Member States with respect to Hungary is further intensified by the frustration arising from Hungary’s geopolitical alignment with the Kremlin and its reluctance to provide meaningful support to Ukraine.

Nonetheless, regardless of the obviously positive impact of these political dynamics in the particular case of Hungary, recent trends also emphasize that compliance with European values, such as democracy, the rule of law and fundamental rights remains a secondary concern for the EU Member States.

Autocratizing EU Member States can only expect substantial peer pressure if they also challenge the common European security and geopolitical interest clearly shared by an overwhelming majority of their EU peers.

While the pressure on Hungary increased for geopolitical reasons, it was slightly eased on Poland, without any substantial positive change in the quality of the rule of law in the country. Poland is a key country supporting Ukraine within the EU and NATO.

 

Prelude

Following twelve years of autocratization in Hungary and the constant challenges the country’s regime posed to European values, in 2022 the fight of the EU institutions against the demise of the rule of law and misuse of EU funds was elevated to a new level.

After the suspension of Hungary’s access to the €5.8bn worth European Recovery and Resilience Facility (RRF) in 2021, in April 2022, the European Commission triggered the procedure established by the Conditionality Regulation, the much discussed legal tool introduced with the EU’s new 2021–2027 budget package. Within this legal framework, the Commission ultimately recommended the suspension of €7.5 bn in the autumn of 2022, which officially represents 65% of the allocations in the three most corruption-prone operational programmes. This amounts to approximately one-third of Hungary’s total allocation of cohesion funds. In parallel with that, the European Parliament also declared Hungary a ‘non-democracy’.

In a political drama unfolding over 2022, the Hungarian government invested heavily in both symbolic compliance with EU anti-corruption conditions and in the creation of a threat posture through blackmailing in order to shape the voting behaviour of the Member States in the Council.

During the autumn of 2022, Prime Minister Viktor Orbán’s government initiated a controversial anti-corruption reform package in response to the 17 conditions jointly adopted with the European Commission, insisting that the disbursement of EU funds to Hungary would not pose any threat to the EU’s financial interests because of these reform measures.

In parallel, the Hungarian regime kept several joint EU and NATO decisions as political hostages, including the EU’s accession to the global minimum corporate tax rate, the €18bn EU financial aid to Ukraine and accession of Finland and Sweden to NATO, to extort a favourable political decision in the Council on EU funding.

On 30 November 2022 the European Commission upheld its previous position and officially proposed the suspension of nearly one-third of Hungary’s cohesion funding of €7.5 bn to the Council. It simultaneously proposed that the Member States accept Hungary’s Recovery and Resilience Plan, tying the release of the already suspended €5.8 bn RFF to the achievement of 27 ‘super milestones’, four of which address issues of judicial independence in Hungary.

 

Sanctions in three stages

In early December 2022, the Council initially requested the Commission to reassess its proposal to suspend €7.5 billion through the Conditionality Regulation, taking into account the reform measures already implemented by the Hungarian government. However, the Commission demonstrated notable resilience in its stance.

Following two weeks of intense, behind closed doors coordination between the European Commission, the French Council Presidency and important Member States, such as Germany, the Commission ultimately accepted that the Hungarian anti-corruption package resulted in certain positive developments. However, it found its overall results unsatisfactory.

In that light, the Commission proposed the suspension of 55% of the three cohesion policy programmes in Hungary that are susceptible to political corruption at a value of €6.3 bn.

At the level of the Committee of Permanent Representatives in the European Union (COREPER), all 26 Member States first supported the application of the EU conditionality regulation against Hungary and the proposed suspension of funds. During the Council’s formal written decision-making procedure, Poland changed its position and voted against the motion, although it was comfortably passed with a qualified majority despite Poland’s opposition.

Nonetheless, the suspension of €6.3bn cohesion funding through the Conditionality Regulation and the tying of the disbursement of the €5.8bn Recovery and Resilience Facility to the compliance with the 27 ‘supermilestones’ were degraded to secondary issues of concern for the Hungarian authorities. The respective Council decisions of 15 December demonstrated the overwhelming political support of the Member States to block the access to EU funding for Hungary’s corrupt semi-authoritarian regime.

The European Commission, emboldened by these developments, suspended almost all payments to Hungary encompassed by the country’s Cohesion Policy Partnership Agreement with the EU. This move was enabled by the EU’s new Common Provision Regulation (CPR) and a fundamental change in the Commission’s legal interpretation and approach to the powers and competences vested in the CPR.

As Israel Butler, R. Daniel Kelemen and Kim Lane Scheppele convincingly already argued back in 2018, even the CPR of the 2014–2020 Multiannual Financial Framework (MFF) allowed the suspension of EU funding for Member States which were breaching the rule of law. However, back then, the European Commission refrained from taking advantage of the opportunities offered by the CPR and sought straightforward legal authorization to suspend funds, a process that led to the birth of the Conditionality Regulation.

However, while attention was focused on the conflicts around the adoption of the Conditionality Regulation during the negotiations of the legislative package related to the MFF 2021–2027, the Commission silently also upgraded the toolkit of the new CPR. Article 9 of the Regulation now defines the ‘Horizontal Principles’ that guide the implementation of the Funds, including ‘respect for fundamental rights and compliance with the Charter of Fundamental Rights of the European Union’, gender equality, non-discrimination and the principle of sustainable development, while Annex III of the CPR establishes the methodology for measuring compliance with the ‘horizontal enabling conditions’.

Using this legal background, while approving the Partnership Agreement with Hungary on 22 December 2022, the European Commission practically refused to pay the invoices presented by the Hungarian government until it meets the horizontal enabling conditions set by the CPR.

The Commission identified concerns related to the Horizontal Principles at four different levels. The most serious concern applies to the question of judicial independence. This issue actually blocks all of Hungary’s cohesion policy allocations worth €22bn. The fact that the €6.3bn suspended through the Conditionality Regulation is part of this sum demonstrates why that piece of the frozen funds is not the primary issue of concern for the Hungarian regime.

In order to unfreeze this €22bn, the Hungarian government has to comply with the four milestones related to judicial independence.

These include:

  • strengthening the National Judicial Council with respect to the powers of the President of the National Office for the Judiciary;
  • strengthening the judicial independence of the supreme court, Kúria;
  • removing obstacles to references for preliminary rulings to the Court of Justice of the European Union;
  • removing the possibility for public authorities to challenge final judicial decisions before the Constitutional Court.

While media reports suggested that the fulfilment of the above four conditions related to judicial independence are low hanging fruits for the Hungarian government which passed a law (Act X of 2023) with respective content in May 2023, no breakthrough was actually achieved and the European Commission remained cautious with its evaluation of the Hungarian reforms.

Compared to the question of judicial independence which is blocking Hungary’s access to all cohesion funding, the budget impact of the further three outstanding issues is significantly smaller, totalling up to €2.5bn. These include the questions of:

  • academic freedom;
  • the annulment of the ‘child protection law’ introduced in June 2021, which breaches the rights of LGBTQI people;
  • compliance with CJEU’s rulings on the rights of asylum.

The concerns related to academic freedom and, most specifically, to the political influence over universities exerted through the board of trustees of the public trust foundations that oversee the operations of newly privatized universities, resulted in the suspension of Erasmus+ and Horizon Europe funding for 21 such universities in January 2023. As this has a paralyzing impact on student mobility and the issue received considerable public attention in Hungary, Prime Minister Orbán’s government was eager to sort out the issue and avoid negative repercussions in public support. However, as with the question of judicial independence, no breakthrough was achieved until June 2023.

In contrast, it is difficult to imagine that the Hungarian government will be ready to make concessions regarding the ‘child protection law’ or the country’s repressive asylum legislation any time soon. In such cases, the political costs of a legislative U-turn would clearly surpass the economic benefits of accessing a further amount of approximately €1bn. From a political perspective it is convenient for the Hungarian government to perpetuate its conflict with the European Union on the fields of asylum and LGBTQI-rights and to claim in its domestic discourse that ultimately EU financial sanctions are measures of the ‘culture war’.

Despite being the inflation record holder in the EU, the Hungarian government was rather successful in mitigating the short-term impacts of the lack of availability of EU funding. Nonetheless, the longer-term negative impact on investment, and especially public investment, is difficult to foresee.

It appears to be a political consensus within the European Commission that the release of the €5.8bn ERRF funding for Hungary and the reassessment of the €6.3 bn cohesion funding suspended through the Conditionality Regulation requires the fulfilment of all 27 ‘supermilestones’, with the 19 anti-corruption and transparency related milestones. This will not happen anytime soon, as the Hungarian government has not demonstrated any advance on the anti-corruption file since the autumn of 2022, while its achievements were deemed unsatisfactory by the 30 November evaluation of the European Commission. In that light, it is fair to conclude that the €6.3 bn cohesion funding and the €5.8bn ERRF resource will remain unavailable to the Hungarian government for the time being.

The only question that is relevant in the short run is whether the Hungarian regime will be able to unlock at least €13.2bn (22bn – 6.3bn – 2.5bn) through compliance with the horizontal enabling condition on judicial independence. In this regard, the leeway of the European Commission might be limited, although it can delay the decision with administrative measures. From a legal perspective, the ‘horizontal enabling conditions’ and the ‘supermilestones’ are unrelated. While budget commissioner Johannes Hanh might be right that, most likely, only the next European Commission will be in a position to close the Conditionality Regulation procedure with Hungary, it is highly unlikely that the freezing of all funding under the Cooperation Agreement can be maintained as long, including in the light of the Hungarian government’s delivery on the four items related to judicial independence.

 

The geopolitics of the protection of the rule of law in the EU

The changing attitudes of the Member States to sanctioning Hungary’s non-compliance with EU law and values also had a fundamental, encouraging impact on the behaviour of the European Commission. While the lack of political support of the Member States previously had a paralyzing effect on the ‘Guardian of the Treaties’, as was clearly demonstrated, for example, by the suspension of the implementation of the Conditionality Regulation between January 2021 and April 2022, the emboldening effect on the Commission is now clearly recognizable. As a further remarkable example of support of the Member States, in April 2023, 15 EU Member States joined the European Commission before the Court of Justice of the EU (CJEU) against the Hungarian government in the case launched as a result of the country’s controversial anti-LGBTQI law.

Have the culminating impacts of thirteen years of autocratization finally convinced the EU Member States about the threats posed by the Hungarian regime and the need for joint action? Hardly. The straw that broke that camel’s back in the political sense was primarily not the rule of law and corruption track record of Prime Minister Orbán’s regime, but the country’s geopolitical stance in the context of Russia’s full-scale war against Ukraine.

Hungary’s critical stance on EU sanctions against Russia and its repeated actions to delay or weaken the measures of the sanctions, the lack of military support for Ukraine, the country’s still cordial diplomatic relations with Russia and taking aid packages to Ukraine, as well as Sweden’s accession to NATO (and previously also Finland’s) hostage created the perception that is increasingly being shared by EU Member States that the state of affairs with the Hungarian regime is becoming unsustainable.

On the one hand, the widespread dissatisfaction with Hungary’s pro-Russian stance and multivectoral foreign policy created the proper political will to address the country’s grave rule of law track record in the European Union and the threats posed by the regime’s methods of operating to the EU’s financial interests. On the other hand, it was only made possible by Viktor Orbán’s inability to readjust Hungary’s foreign policy and geopolitical strategy to the new realities created by Russia’s full-scale invasion against Ukraine in February 2022.

While the demonstrated political will to deploy measures of financial conditionality to better protect the EU’s financial interests and the rule of law in the EU Member States is obviously an important positive development, one should not be misguided by the underlying reasons. As demonstrated by the decreasing criticism of Poland because of the country’s enormous support for Ukraine and its role of security provider on NATO’s Eastern Flank, the main reason behind the changing approach of the Member States to Hungary is also not primarily rule of law related, but geopolitical.

It remains a hypothetical question as to whether a U-turn in Hungarian foreign policy on Ukraine could be rewarded by a less stringent approach to the regime’s rule of law breaches by other EU Member States, as the Hungarian government appears to be fundamentally stuck in its old multivectoral foreign policy strategy. Nonetheless, while the increasing political will to address certain aspects of Hungary’s autocratization at the level of the European Union should be welcomed, reflection is needed on the political dynamics that enabled this change.

As long as the positions of the Member States as to whether or not to protect the rule of law in the EU are determined by issues which are external to European values, such as geopolitics, the autocratization of such EU Member States as Hungary or Poland will also continue to pose a threat to the integrity of the EU’s institutional and legal order.

 

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This article was originally published by The Wiktor Osiatyński Archive and OKO.press on July 28, 2023. The article is re-published here without alterations.

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Author

Dániel Hegedűs is a senior fellow at The German Marshall Fund of the United States.

The AUTHLIB consortium does not take collective positions. Publications only represent the views of their authors.

 

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Header picture photo credit: via Flickr

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