Brussels May Suspend Further EU Funds on Hungary's Construction Law

The European Commission has raised alarm bells over Hungary's state construction investment law as the legislation might clash with regulations on public procurement, conflicts of interest, and the handling of EU funds. Critics point to the government's opaque exemptions for certain projects and unauthorized adjustments to property ownership rights, triggering a potential freeze on EU operational programs and associated funds.

In a move underscoring the severity of the situation, the Directorate-General for Regional and Urban Policy (DG Regio) dispatched a stern letter in late March addressed to János Lázár's Ministry of Construction and Transportation. With a one-month deadline for Hungary to respond, the letter outlines deep concerns about the law that has been active since last November, according to a report by online news portal Portfolio.hu. Insights from EU officials and the letter itself suggest that the Commission's patience is wearing thin, and unresolved issues could halt payments for key infrastructure and construction projects across Hungary.
Brussels has already halted payments to Hungary citing concerns over the erosion of democratic values and the rule of law in the country. The European Commission has called on Hungary to meet a series of milestones for the frozen funds to be released.

High stakes
As the deadline looms, the potential consequences for Hungary are becoming clearer. Should the EU find the law in violation of its standards, not only could payments for specific programs be suspended, but nearly all public investments might face scrutiny. This could spell a suspension of payment deadlines and even lead to financial corrections within CPR programs, impacting billions in state infrastructure investments.
While the EU letter leaves unspecified which programs may see halted invoice acceptance, the contentious Hungarian law applies to construction investments funded under the Hungarian Village Program and the Téry Ödön National Tourist House Development Program, as per the Central Budget Act. Additionally, it impacts all state construction and defense industry investments meeting the national public procurement threshold.

The situation leaves the door open for Brussels to impose future restrictions based on their analysis, potentially impacting Hungarian state infrastructure investments ranging from 2 to 6.5 billion euros across various operational programs.
Dialogue between Hungary and the EU Commission is expected to continue for months. Historical interactions between the two parties, dating back to before the law's enactment, show a complex negotiation process. While Hungary's Ministry of Construction and Transportation acknowledges past discussions, they claim to have received no official notification on the matter, leaving room for further negotiations.
With potential EU funding at stake, ranging from infrastructure projects to national defense, the resolution of this dispute will be closely watched. The European Commission's final assessment and Hungary's response could significantly influence the country's future infrastructure projects and its relationship with the EU. As negotiations proceed, all eyes are on how Hungary will navigate these turbulent waters, balancing national legislation with EU compliance requirements.