Hungary is trying to unlock funds frozen amid the EU’s disciplinary process

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Hungary hopes to strike a deal with Brussels on blocked EU funds by the end of the year, as the country races against the clock to unlock billions that have been frozen due to concerns about state-captured institutions and corruption.

If Budapest fails to reach an agreement with the European Commission by the end of 2022, it will lose €4.64bn (£3.91bn) in Covid recovery funds, while questions remain over a potential six-year funding program of 24.3 billion euros to upgrade its national infrastructure.

While Hungary’s prime minister, Viktor Orbán, has previously suggested he did not need the EU’s Covid grant, he has sent top officials to Brussels on a charm offensive to unlock the funds.

Hungary’s chief negotiator, Tibor Navracsics, told the Guardian he was optimistic about a deal on the Covid recovery plan worth a potential €15 billion by the end of the year. He also hopes Hungary can conclude a “partnership agreement” in early autumn to secure 24.3 billion euros in “cohesion funds”, mainly from the EU.

Both agreements are entangled with an unprecedented disciplinary process against Hungary in April that could lead to the suspension of EU funds due to violations of the rule of law. “[Resolving] the legal certainty procedure may be a prerequisite for obtaining an agreement on the solidarity allowance, or RRF [Covid recovery] money,” Navracsics said. The Hungarian government has been given until August 22 to respond to a lengthy letter from the commission warning of “remedial measures” if Budapest fails to address long-standing concerns about the rule of law.

Hungary has received billions in EU funds since joining the bloc in 2004, but concerns have grown over alleged misuse of EU cash to enrich Orbán’s friends and family. During Orbán’s 12 years in power, independent media have withered and checks and balances have weakened.

Navracsics – a Hungarian former EU commissioner, who was appointed regional development minister in May – has been sent to Brussels to persuade officials to release the funds. His low-key charm offensive has been overshadowed by Orbán’s attacks on EU sanctions policy and inflammatory speeches, including an address on so-called racial mixing that prompted a senior adviser to stop denouncing “pure Nazi” rhetoric.

Senior EU officials believe Orbán needs EU money as he struggles with soaring inflation, a plunge in the Hungarian forint and the threat of a severe recession. The darkening economic outlook has forced the Hungarian prime minister to scrap energy price caps and raise taxes on small businesses, leading to days of protests in Budapest last month, with people chanting “Orbán get lost.”

Analysts have cited the lack of agreement with the EU as one of the sources of economic pressure on the fragile Hungarian economy.

EU officials are sensing a moment of leverage to push the government to reform its institutions. But they also distrust Orbán, known for his so-called “peacock dance”, i.e. offering cosmetic concessions or a less tactical retreat, while continuing to turn Hungary into an illiberal state. “Our experience has been over a decade that they say they’re sticking, then they drop one thing and then they come back through the back door. We’ve never solved a problem 100%,” a senior EU official told the Guardian. “It’s the great question of trust.”

The commission wants to create a new authority to secure EU funds in Hungary and calls for stronger anti-corruption bodies and room for NGOs to scrutinize government policies.

The Covid recovery plan is worth 5.8 billion euros in grants to Hungary – 1.4 billion euros less than if it had been approved last year. But 70% of the grants (€4.64 billion) will disappear if there is no agreement by the end of the year. The total plan could be worth 15 billion euros if Budapest chooses to take up cheap loans on offer.

Navracsics, a member of Orbán’s dominant Fidesz party, would not confirm whether Hungary was willing to agree to an additional authority to secure EU funds. He said Hungary was making “institutional changes”, including changing public procurement rules – a key concern as Orbán’s allies secured unusually lucrative EU-funded contracts through non-competitive processes.

Navracsics insisted that Hungary could be trusted to make meaningful changes because “we are making enough institutional changes [and] because I am the main dealer and I can give personal guarantees for it”.

While he went on to claim that Hungary performed well in terms of “absorptive capacity” – that is, efficient use of EU funds – his answer is unlikely to convince skeptics in the Commission or the European Parliament.

Daniel Freund, a Green MEP focused on EU budget control, said he feared the EU was going into another trap. ” [Orbán] has outwitted the commission time and time again, signaled that he will admit this or that, and in the meantime he has been preparing his next trick of how to get around certain things.”

The German MEP argued that Hungary’s plan should not be approved this autumn, because more time was needed to restore the rule of law after 12 consecutive years of the Orbán government. “I think it is unrealistic to have the rule of law repaired to a degree where it makes sense to undo the recovery plan in the next two to three months,” he said.

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