Hungary optimistic about 15 billion euros in EU funds after promises on energy and corruption

Hungary says it is increasingly convinced that promises to wean itself off Russian fossil fuels and tackle corruption will allow it to strike a deal with Brussels aimed at unlocking billions of euros in stimulus funding.

Justice Minister Judit Varga said talks with the European Commission have become more constructive and detailed since Budapest made concessions on reforming the judiciary, legislation, tenders and the energy system. . But EU officials stressed that a number of issues remained unresolved.

“We have become more optimistic,” Varga told the Financial Times in an interview. “Discussions have advanced to a higher level. . . This is why we are optimistic that we can finally talk about the milestones we need to reach. »

Concerns in Brussels over widespread breaches of the rule of law have meant that Budapest has struggled to push ahead with the bid it submitted in May last year for a potential €15 billion share from the EU’s €800 billion coronavirus recovery fund.

Prime Minister Viktor Orbán has recently intensified his efforts to obtain the commission’s approval amid deteriorating economic and fiscal conditions that have contributed to the decline in the value of the forint and the increase in the cost of debt.

Varga said the stimulus fund talks had become less politicized after Orbán won his fourth consecutive election victory in April.

During the campaign, the commission and the Hungarian government were reluctant to change their positions, but were now focused on how to disburse the money before the end of the year, she said.

“It was a very strong electoral fight, in which Brussels was often the focus, and we saw that the commission wanted nothing to do with it,” Varga said. While Budapest has not changed its attitude after the elections, the “atmosphere” has changed, she said.

“We are here to stay, there is a war and an energy crisis,” she said, adding that Budapest had sent the actual texts of the planned legislation to the commission after receiving signals that its general plans were acceptable. “They had never said that before. Now it was “we want to see a bill”. . . until now, we were only talking about principles.

Varga said a key pillar of Budapest’s offer was a pledge to spend as much stimulus money as possible – including the entirety of a potential loan package worth nearly 10 billion euros – on reforms that would help to decarbonize Hungary and thus reduce its dependence on Russian energy.

Hungary’s decision to present detailed proposals addressing rule of law concerns – such as the reduction of single-bidder tenders for public contracts and a new judiciary challenging the supremacy of the Attorney General – is viewed positively in Brussels, where officials confirmed the talks had made progress.

But the commission said agreement was still needed on a number of issues, including anti-corruption efforts and audit agreements.

Brussels is also looking for stronger commitments to improve inclusive education. In 2019, the commission urged Budapest to increase the participation of disadvantaged groups, especially Roma, in quality mainstream education.

In addition, Hungary must rework its application to take into account a recent downward revision of the amount of non-refundable grants it will receive from the recovery fund to 5.8 billion euros from more than 7 billion euros. . The revision was calculated on the basis of the economic performance of Member States last year.

Although Orbán signaled in March that Hungary would also need the larger cheap loan component of its stimulus funds, Budapest has yet to submit a formal request for those funds, a government official admitted to the Financial. Times.

“The decision . . . will be made officially following the approval of the plan submitted in connection with the non-reimbursable funds [in the autumn]said Balázs Orbán, the prime minister’s political director, who is not related to the prime minister.

A Commission decision to release billions of euros in recovery funds could trigger a backlash in the European Parliament if it appears that Hungarian concessions do not go far enough, MEPs have warned. Hungary has a deadline of the end of the year to strike a deal with the EU if it wants to access its full share of the recovery fund.

Valdis Dombrovskis, executive vice-president of the commission, said on Tuesday that it was in “constructive discussions” with Budapest. “The outstanding issues are well known and once they are resolved, we [will be] able to move forward with finalizing our assessment,” said Dombrovskis.

Hungary has angered other EU member states by resisting sanctions on Russian energy imports in response to the war in Ukraine. Budapest obtained in May an unlimited exemption from the ban on imports of Russian oil.

Varga said the decoupling of Russian energy must be done in a “reasonable” way when carbon-neutral alternatives become available. “Of course, we need a strategy to get rid of Russian fuels – as well as fossil fuels,” she said. “To do this, we need to develop our energy transmission network.”

She said it would not be economically rational to spend more on fossil fuel infrastructure, such as new capacity that would allow Hungarian oil company MOL to process non-Russian oil.

Hungarian Foreign Minister Péter Szijjártó said on Friday that Budapest had gone as far as it could and that further demands from the EU would be political, not substantive.

“We responded to the EU proposals,” Szijjártó told the news site. “They have our answers to their concerns, and if they do not grant us access to resources, they will clearly expose themselves and expose their political blackmail against us. So now the ball is in Brussels’ court.

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