The European Commission (EC) formulated serious shortcomings for Hungary in a report on the rule of law. Hungary has made some progress in implementing the European Commission’s recommendations in last year’s rule of law report, but serious shortcomings still remain. The EC has therefore ruled that Budapest cannot access the remaining frozen EU funds.
Blocked funds for Hungary
The EC made a series of recommendations ranging from making the judiciary more transparent to cracking down on corruption and reforming lobbying and campaign finance practices last year. The report recognises the ongoing judicial reforms, which were one of the preconditions for the release of the tranche of frozen funds.
The National Judicial Council, composed of judges elected by their peers, can exercise its powers to effectively check the powers of the President of the National Judicial Office, and the transparency of case allocation has further improved at the level of the Curia, Hungary’s supreme court.
However, the situation has not improved in the lower courts. Political pressure on the prosecutor’s office remains a concern, creating a risk of unwarranted interference in individual cases. Judges constantly face pressure on freedom of expression, and smear campaigns against them in the media continue.
With regard to Hungary’s efforts to fight corruption, the EC notes that Hungary has adopted a new anti-corruption strategy for 2024-2025 and legislation is planned to combat lobbying and the “revolving doors” phenomenon, which entails switching positions between the public and private sectors.
The new Integrity Authority reports that it faces obstacles in effectively carrying out its oversight tasks, and the Anti-Corruption Working Group has yet to produce tangible results, the report said.
Political party and campaign finance shortfalls remain unresolved, and the government has adopted new rules restricting foreign funding of political activities.
At the end of 2022, the EU blocked the allocation of €6.3bn from the Cohesion Fund to Budapest over concerns about rule of law problems, corruption and lack of judicial reforms. The refusal to release the funds is part of the EU’s Conditionality Regulation, which aims to protect the Union’s budget from risks associated with rule of law violations. In addition, around €2.5bn of cohesion funds are blocked due to the treatment of refugees, discrimination against LGBT people and violations of academic freedom.
Hungary is to receive €10.4bn from the RFP, including €6.5bn in grants and €3.9bn in loans. These funds can only be provided if Budapest fulfils all 27 superstages. In December 2023, Ecofin approved the amended country’s RRF plan, clearing the way for the transfer of €0.9bn in pre-financing to REPowerEU, which is not conditional.
Pressure on Slovakia via Ukraine
Slovak President Peter Pellegrini and members of populist Prime Minister Robert Fico’s left-right cabinet have threatened Ukraine with “retaliatory measures” for halting Russian oil imports through the Druzhba pipeline.
Ukraine’s tightening of sanctions against Russian oil giant Lukoil has cut Russian oil supplies to Hungary and Slovakia, and Hungary’s top diplomat Peter Szijjártó said earlier this week that ‘the oil security of Hungary and Slovakia is at risk.’ Hungary, Slovakia and the Czech Republic are exempt from EU sanctions on Russian oil because they rely heavily on it. Pellegrini said at a press conference with Defence Minister Robert Kalinak in Bratislava on July 24:
“I firmly believe that order will be imposed as soon as possible on the Ukrainian side, because Slovakia as a sovereign country will eventually have to resort to retaliatory measures, and that will not benefit Ukraine, its citizens or any of us in this region.”
Pellegrini’s statement came a day after Szijjártó said Hungary would block the disbursement of funds from the European Peace Fund (EPF) for Ukraine until Kyiv allows Russian Lukoil’s oil transit through Druzhba.
Pellegrini also said that “in key situations” Slovakia had “acted as a responsible neighbour and a good partner towards Ukraine,” recalling the reverse gas flow that helped “to supply Ukraine at times when it did not have enough gas.” He recalled Slovakia’s humanitarian aid to Ukraine and the defence systems the country had provided under previous cabinets to help Ukraine withstand military conflict.
Slovakia was one of Kyiv’s staunchest supporters before Fico’s cabinet cancelled state military aid to Ukraine. Some experts believe Kyiv made such a move to influence Slovakia and Hungary, which refuse to adhere to the EU’s anti-Russian policy.
Fico openly co-operates with Hungarian right-wing politician Viktor Orbán, despite the fact that they are at opposite ends of the left-right divide in the political spectrum.
Pellegrini adopted Fico’s style to secure victory in the second round of the presidential race in April, but vowed to be impartial and stepped down as chairman of the centre-left Hlas party, a key ally of Fico’s coalition with the left-wing Smer, before being inaugurated as the country’s new president in June.
Harsh statements against Ukraine followed from other members of Fico’s cabinet, including Interior Minister and new Hlas chairman Matus Sutaj Estok, who said that “Ukraine has chosen a way to blackmail Slovakia and Hungary,” adding that “it took this step despite the fact that we were among the first to provide it [Ukraine] with significant humanitarian aid after the outbreak of the military conflict on its territory.”
Hungary’s disqualification from hosting a key meeting of EU foreign and defence ministers is the latest sign that Brussels is ready to take Viktor Orbán’s defiance of EU norms seriously.
Hungary’s opposition to much of the EU agenda has rarely been subtle. It is sharp. Orbán’s government has been in constant conflict with Brussels on issues ranging from judicial independence and media freedom to anti-LGBT+ laws and corruption. Most recently, Hungary has become a thorn in the side of the EU over its support for Ukraine, constantly blocking resolutions and even funding for Kyiv.
Symbolic signal
The EU took the unprecedented step this week of stripping Hungary of the right to host the next meeting of foreign and defence ministers because of its stance on the war in Ukraine. The meetings were originally due to take place in Budapest, but will now be held in Brussels.
The move follows Orbán’s meeting with Russian President Vladimir Putin in Moscow earlier this month. While Orbán called the trip a “peace mission,” European Commission President Ursula von der Leyen described it as “nothing less than a mission of appeasement.” Outgoing EU foreign policy chief Josep Borell said Orbán’s actions must have “consequences” and that “we must send a signal, even if it is a symbolic signal.”
Borell also took the opportunity to condemn Hungary’s continued veto of EU military aid to Ukraine, which currently touches €6.6 billion in reimbursements. In response, Hungary called the move “utterly childish.”
Hungary’s economy is feeling the effects of its estrangement from the EU, and its poor performance in recent years has perhaps hit conservative Hungarians – Orbán’s mainstay – hardest.
Energy subsidies, which give Hungarians some of the cheapest gas and electricity in Europe, support the majority of the population, but the Hungarian forint has depreciated significantly in recent years, affecting the cost of imports and contributing to inflationary pressures.
High inflation rates – although now well below the peak of 17.5 per cent reached in early 2023 – are eroding purchasing power, affecting Hungarians’ daily lives more than Orbán would like.
Small businesses are also unhappy that Orbán’s government has prioritised FDI from large global corporations, including automotive giants such as Audi, BMW and Mercedes-Benz. These investments were seen as major victories for Orbán’s Fidesz party, promising to create jobs and stimulate the economy, and serving as proof that his self-proclaimed illiberal social policies were not a barrier to investment.
The government’s strategy for attracting FDI included offering generous tax breaks, creating a favourable environment for investment, and highlighting Hungary’s strategic position in Central Europe as an advantage for logistics operations. On the whole, this strategy worked. However, despite these investments, Hungary’s economic growth has been uneven and, by some measures, insufficient compared to similar countries in Central and Eastern Europe – not least neighbouring Romania.
According to BNP Paribas bank, “Hungary has one of the worst economies in the region.” GDP will fall by 0.9 per cent in 2023. The Organisation for Economic Co-operation and Development (OECD) expects a small recovery this year, to 2.4 per cent, but warned in a recent report that the pace of disinflation, future energy prices and EU inflows dependent on further reforms pose risks to the outlook.
Oil row
Kyiv imposed sanctions blocking the transit to central Europe of crude oil sold by Moscow’s largest private oil company, Lukoil, raising fears of supply shortages in Budapest last month. Hungary gets 70 per cent of its oil imports from Moscow and half that amount from Lukoil. Hungary now wants the EU to intervene on its behalf. The country’s foreign minister Péter Szijjártó told a meeting of EU envoys in Brussels on Monday:
“Ukraine’s decision fundamentally threatens the security of supply to Hungary. This is an unacceptable step by Ukraine, a country that wants to become a member of the European Union, and by its decision alone jeopardises oil supplies.”
Slovakia also said it could suffer from Ukraine’s partial ban on Russian oil exports through the country. Moscow accounted for 88 per cent of Slovakia’s oil imports in 2023.
Meanwhile, the European Commission is threatening Slovakia with repercussions over a bill that would give foreign agent status to any NGO that receives more than €5,000 a year from abroad. European Commissioner Vera Jourova said:
“If the Slovak government, follow Hungary’s example regarding the NGO law, we will immediately launch an infringement procedure.”
The Slovak parliament is considering a law that would give the status of a “foreign-supported organisation” to any NGO that receives more than €5,000 a year from abroad. In addition, the authors of the bill from the Slovak National Party (part of the ruling coalition) proposed to introduce mandatory publication of information about the sponsors of non-profit organisations.
The European Commission rejected a request from Hungary and Slovakia to resume oil supplies from Russia via Ukraine, Financial Times reported.
At a meeting of EU trade representatives on July 24, Budapest and Bratislava demanded that EU countries take retaliatory measures against Ukraine within the framework of the association agreement with the EU. The publication writes that the sides did not come to an agreement. EU Trade Commissioner Valdis Dombrovskis said that Brussels would need more time to gather evidence and assess the legal situation.
According to three diplomats interviewed by the FT, 11 states supported the EC’s position on the issue and no country sided with Budapest and Bratislava. The FT specifies that the share of Russian oil in Slovakia’s only refinery is 35-40 per cent. Products from this oil are exported to the Czech Republic and Ukraine.
