EU Council Suspends EUR 6.3 Billion to Hungary

The Committee of Permanent Representatives to the EU has found the required qualified majority to impose measures for the protection of the Union budget against the consequences of breaches of the principles of the rule of law in Hungary, concerning public procurement, the effectiveness of prosecutorial action and the fight against corruption in Hungary. The budgetary impact of this suspension amounts to approximately EUR 6.3 billion in budgetary commitments.

In the course of the procedure, Hungary has committed to adopt a number of remedial measures considered by the Commission as capable to address the concerns raised, if taken together and correctly and effectively implemented. Given the remedial measures so far adopted by Hungary are affected by significant weaknesses which seriously compromise their adequacy to address the breaches of the principles of the rule of law identified by the Commission in its proposal, the Council considers that the ensuing risk for the budget of the Union remains high. However, in light of the number and significance of remedial measures that have been satisfactorily implemented by Hungary and given the degree of cooperation it would be a “reasonable approximation” to establish the remaining risk for the budget at 55% of the commitments of the programs concerned, according to a statement by the European Council.

The conditionality regulation is an instrument aimed at the protection of the Union budget and of the financial interests of the Union.

For their decision, member states based themselves on an assessment made by the Commission, which evaluated the facts and circumstances that have given rise to the activation of the mechanism. The decision of the Council mainly relies on the facts and circumstances as assessed and substantiated by the Commission.

Recently, Hungary adopted a number of remedial measures. However, on 30 November, on the basis of its analysis, which it confirmed in its updated assessment on 9 December, the Commission concluded that those remedial measures were not fully satisfactory to meet the conditionality regulation’s objective to protect the Union budget.

EU member states acknowledge the work done by the Hungarian authorities but decided that these remedial measures do not sufficiently address the identified breaches of the rule of law and the risks these entail for the Union budget.

The measures defined in the implementing decision are of a temporary nature and can be lifted by the Council, acting on a proposal from the Commission, without loss of Union funding, if the situation is fully remedied within two years.

According to the Conditionality Regulation, any member state which faces measures under the rule of law conditionality mechanism remains obliged to implement the program or the fund affected by the measure and in particular to fulfil its obligations towards final recipients or beneficiaries of the funds.

Highlighting the background to this decision, the European Council statement reminds that on September 18, 2022, the Commission adopted a proposal on measures for the protection of the Union budget against breaches of the principles of the rule of law in Hungary. The proposal is based on regulation 2020/2092 on a general regime of conditionality for the protection of the Union budget (the conditionality regulation).

The conditionality regulation is aimed against breaches of the principles of the rule of law that affect or seriously risk affecting the sound financial management of the budget or the protection of the financial interests of the Union. The regulation entered into force on January 1, 2021 as an additional layer of protection of the budget, complementing the already existing instruments defending the financial interests of the Union.

This regulation is an instrument intended for the protection of the Union budget, and not an instrument to oblige a member state to abide to the principles of the rule of law. The EU Court of Justice has confirmed that the budget conditionality is an independent and different procedure from that of Article 7 TEU.

The first notification from the Commission under the conditionality regulation was sent to Hungary on April 27, 2022. This represented the beginning of a process of assessment and exchange of information with the member state concerned, which lasted until mid-September and led to the submission of a proposal for a Council decision on September 18, 2022.

The Commission considered that the issues identified by Commission services and notified repeatedly to Hungary still persist and they constitute systemic breaches of the principles of the rule of law, in particular of the principles of legal certainty and prohibition of arbitrariness of the executive powers.