21 November, 2022
By Irena Baboi – Senior Fellow
On 18 September, the European Commission formally recommended that €7.5 billion (£6.5 billion) in funding for Hungary should be put on hold until the country reverses its more than decade-long democratic backsliding. The recommendation followed a report adopted by the European Parliament on 15 September which condemned the Hungarian government for making “deliberate and systematic efforts” to undermine the founding values of the European Union, and declared that Hungary can no longer be considered a democracy. Since September, Budapest has shown signs that they are willing to adopt and implement much-needed democratic reforms, but also that the Hungarian government will do what they can to go back to business as usual. If the European Union is to reverse or even just curb Hungary’s slide towards autocracy, commitment to this long-term process is crucial – and Brussels has all the necessary tools and mechanisms to turn Budapest back on the democratic track.
Since coming to power in 2010, Hungarian Prime Minister Viktor Orban’s Alliance of Young Democrats–Hungarian Civic Union (FIDESZ) has adopted a series of legal and constitutional changes that has allowed the ruling party to effectively take control of Hungary’s independent institutions, including the judiciary. The FIDESZ government is also infamous for its anti-migrant and anti-LGBTQ+ policies, as well as laws that hinder the operations of opposition groups, journalists, universities, and NGOs that are either critical of the government’s decisions and actions, or of a perspective that FIDESZ finds unfavourable. During the pandemic, Prime Minister Orban prolonged the state of emergency indefinitely, effectively authorising his government to rule by decree without a time limit. In 2022, Freedom House rated Hungary as ‘partly free’ in their country report, highlighting FIDESZ’s dominance over the governing of the country, Prime Minister Orban’s considerable influence over Hungary’s legislature, and the opposition’s limited ability to check government activities.
Concerned over the worsening state of affairs in Hungary in the last more than a decade, the European Parliament has been consistently pushing the Commission to take measures against Budapest’s slide towards autocracy. In 2018, the Parliament triggered Article 7, a preventative measure that allows the European Union to intervene in the event of a serious breach by a member state of the values on which the Union is founded. In January 2021, the rule of law conditionality mechanism finally came into force, and the European Commission triggered it for the first time in April of this year. Under the rule of law conditionality regulation, Brussels can suspend payments to member states in cases where breaches of rule of law principles risk affecting the European Union’s financial interests. The Council of the European Union now has until 19 December to decide whether Hungary has made sufficient progress in stemming its democratic backsliding, or Brussels follows through with the suspension of funds. Crucially, this vote requires a qualified majority rather than unanimity – only 15 out of the 27 European Union member states need to be in favour in order for the motion to pass.
When the rule of law conditionality mechanism was triggered, Hungary’s initial response was to deny the allegations that they were guilty of rule of law breaches, and there was no offer from Budapest to adopt measures and remedy the situation. In July, in their annual Rule of Law report, the European Commission stressed that Brussels’ concerns over Hungary’s rule of law breaches remain unaddressed, and sent the Hungarian government a letter to inform them of the measures they intend to propose. This had the intended effect, and over the summer, Budapest submitted a list of seventeen reforms the country is committing to implementing in order to prevent their funding from being suspended. Anti-corruption legislation has also been submitted by the Hungarian government to the country’s parliament, and it includes the creation of a seemingly independent Integrity Authority, an institution tasked with ensuring that funding from the European Union is not misappropriated by the government and their allies.
Despite his continuous pushing of Brussels’ boundaries, backed by a confidence in his apparent domestic popularity, Hungarian Prime Minister Viktor Orban is very much aware that his country needs the European Union. The threat to withhold funding comes at a time when Hungary is struggling economically, with Budapest’s government already contending with high prices, soaring inflation, an unstable currency, and an energy crisis. Orban has said that he will seek to secure this funding from “other international partners”, but so far neither Russia nor China have expressed willingness to replace the European money Budapest stands to lose. The European Union funding at risk of being withheld represents 65% of the total amount of cohesion funds that Hungary is allocated until 2027, and covers programmes that are heavy on public procurement. Out of the COVID-19 Recovery Funds, 70% are being withheld, taking the total to 8.5% of Hungary’s GDP. As Orban is most likely very much aware, domestic popularity is directly proportional to material well-being, and long-term economic struggles always breed discontent. This is the ideal time for the European Union to demand long-lasting anti-corruption and rule of law reforms – Brussels has more leverage over Budapest than ever.
The timing of the threat to withhold funding and demand democratic reforms is noteworthy for a further reason, especially since the European Commission has effectively ignored Hungary’s slide towards autocracy for years. On the list of European Union values that Hungary has undermined and threatened, the European Parliament included Budapest’s blocking of restrictive measures against Russia, stressing that this constitutes a security problem for the European Union. Hungary has repeatedly opposed the imposition of sanctions on Russia, and when Budapest finally agreed, it was to a watered-down version of them. Less than two weeks after the European Parliament’s report was published, Hungary opposed a new batch of sanctions proposed by the European Union, this time in the energy and nuclear sector. Prime Minister Orban has consistently been a vocal critic of these sanctions – which the European Union needs unanimity to impose –, justifying his country’s opposition to imposing them by arguing that Europe needs to keep the dialogue open with Russia. Taking it one step further in their solidarity with Moscow, Budapest has also refused to contribute to a support package for Ukraine proposed by the European Union in November. In standing with Russia and against European sanctions, Hungary stands alone – but their firm opposition undermines the unity of the organisation, and prevents Brussels from taking more decisive action.
The report published by the European Parliament did also criticise the European Union for failing to hold Budapest accountable sooner, and expressed deep regret that this “contributed to a breakdown in democracy, the rule of law and fundamental rights in Hungary, turning the country into a hybrid regime of electoral autocracy”. For years, there were no consequences for Prime Minister Orban’s autocratic decisions, and as a reaction to criticism from Brussels, he would blame the European Union for Hungary’s economic and social problems. The issue with imposing other kinds of sanctions on Hungary, however, is that most decisions within the European Union require unanimity – and Budapest has always been able to count on the support of countries like Poland, guilty of their own democratic and human rights backsliding.
On 22 November, European Union member states will also vote on whether or not to withhold €14.9 billion (just under £13 billion) in grants and loans as part of Brussels’ COVID-19 Recovery Fund for Hungary. The initial list of reforms demanded did not include judicial independence, as this falls outside the scope of the rule of law mechanism triggered by the European Commission. For this reason, there was internal pressure from member states for Brussels to withhold additional funds, and ensure the issue of the Hungarian government’s control over the judiciary is addressed. Importantly, the outcome of this vote will also not require unanimity, only a qualified majority – a much lower threshold, which leaves Prime Minister Orban without the protection of his friends and allies.
If Hungary’s response on both these fronts turns out to be lukewarm – and Budapest is likely to do as little as possible to unlock these funds –, the European Union needs to follow through with their threat to withhold funding. This will send an important message to other member states that are and have been undermining European Union values, and getting away with it. While Hungary is, in many ways, the European Union’s worst offender, countries like Poland and Bulgaria are not far behind. The latter ranks even lower on Freedom House’s barometer, and Poland has been systematically undermining the rule of law, judicial independence, democratic norms, and fundamental human rights. Warsaw has had part of its own cohesion and COVID-19 recovery funds blocked this year, and still needs to meet certain milestones and targets in order to receive this money – they will be observing closely how the European Union handles matters with Hungary.
The good news is that the European Commission can trigger the rule of law mechanism again if necessary. An even better option, however, is for the European Union to suspend Hungary’s funds and release them gradually, conditional on Budapest following through with the implementation of long-lasting reforms. The Commission has hinted that, like in the case of Poland, milestones and targets will need to be achieved by Budapest in order for funding to be released. This suggests that the European Union is taking a long-term approach – the hope now is that it will also be a thorough one.
With the rule of law conditionality mechanism, the European Union is showing that they do have or can create the tools and mechanisms to turn member states back on the democratic track. More importantly, Brussels is showing that not every decision requires unanimity, especially when it comes to internal matters. All that is left now for the European Union to show is that they can monitor how legal frameworks and institutions function in practice, and maintain pressure on a member state to implement long-lasting democratic reforms – this will send an important message about upholding the rule of law to all European Union member states, and even the candidate ones.