Hungary optimistic on €15bn EU funds after pledges on energy and corruption

Hungary says it is increasingly confident that pledges to wean itself off Russian fossil fuels and tackle corruption will enable it to strike a deal with Brussels aimed at unlocking billions of euros in recovery funding.

Judit Varga, justice minister, said talks with the European Commission had become more constructive and detailed since Budapest made concessions on reform of the judiciary, lawmaking, procurement 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 . . . That’s our reason for optimism that at long last we can talk about the milestones we need to meet.”

Concerns in Brussels about widespread rule of law violations have meant Budapest has struggled to make progress with the bid it submitted in May last year for a potential €15bn share of the EU’s €800bn coronavirus recovery fund.

Prime minister Viktor Orbán recently stepped up efforts to win commission approval amid deteriorating economic and fiscal conditions that have contributed to a decline in the value of the forint and rising debt costs.

Varga said talks on the recovery funds had become less politicised after Orbán in April won his fourth successive landslide election victory.

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

“It was a very strong campaign struggle, in which Brussels was often in the focus, and we saw that the commission wanted nothing to do with that,” Varga said. While Budapest had not altered its attitude after the election, the “atmosphere” had changed, she said.

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

Varga said a key pillar of Budapest’s offer was a promise to spend as much as possible from the recovery funds — including all of a potential loan package worth nearly €10bn — on reforms that would help decarbonise Hungary and so reduce its reliance on Russian energy.

Hungary’s decision to offer detailed proposals addressing rule of law concerns — such as for reducing single-bidder tenders for public contracts and a new judiciary branch challenging the supremacy of the chief prosecutor — is seen positively within 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 arrangements.

Brussels is also seeking stronger commitments to improving integrated education. The commission in 2019 urged Budapest to increase the participation of disadvantaged groups, in particular Roma, in quality mainstream education.

In addition, Hungary needs to rework its bid to take account of a recent downward revision to the amount of non-refundable grants it will receive from the recovery fund to €5.8bn from more than €7bn. The revision was calculated based on member states’ economic performances last year.

Although Orbán signalled in March that Hungary would also require the larger cheap loan component of its recovery funds, Budapest has yet to submit a formal request for those monies, a government official acknowledged to the Financial Times.

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

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

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

Hungary has irritated other EU member states by resisting sanctions against Russian energy imports in response to the war in Ukraine. Budapest in May secured an open-ended exemption from the ban of Russian oil imports.

Varga said decoupling from Russian energy must be done in a “sensible” way when carbon neutral alternatives became available. “Of course we need a strategy to get rid of Russian fuels — as well as fossil fuels,” she said. “To do that we need to develop our energy transmission grid.”

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

Hungary’s foreign minister Péter Szijjártó said on Friday that Budapest had gone as far as it could and further EU demands would be political, not substantial.

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