Financial Hardships Pressure Changes in Budapest

By Brittany Macaddino

Pressured by his country’s quickly devaluating national currency and rising inflation, Hungary’s Prime Minister, Viktor Orban, is moving to strike a deal with the European Commission (“Commission”) to receive financial aid to help lift COVID-19 related economic difficulties.[1] The Forint, Hungary’s national currency, has plummeted almost ten percent against the Euro since Russia’s invasion of Ukraine — the largest drop in emerging markets since the Turkish Lira.[2] This drop and the prospect of proceeding without EU funding have prompted investors to shun Hungarian assets, further weaking Hungary’s economy.[3]

Until now, the Commission has withheld its approval to withdraw such funds, accusing Orban’s government of undermining the rule of law.[4] Compounding Hungary’s need to withdraw these funds has been EU imposed penalties over the same rule of law issues.[5] Namely, Hungary has been found in violation of the EU treaty for public tender procedures with insufficient anti-corruption safeguards, migration policies, and LGBTQ rights.[6] The Commission is also concerned about “serious irregularities” such as fraud and conflicts of interest withing the Hungarian government.[7]

In desperate need of financial assistance, Hungary now plans to amend several of these laws the Commission has criticized by the end of October.[8] Orban’s Chief of Staff, Gergely Gulyas, has stated that Budapest has come to accept the EU’s demands in several important areas, namely procurement, prosecution, legislation, and energy.[9] Without giving a timeline, Gulyas stated that Hungary plans to reduce the proportion of single-bidder public procurement tenders below fifteen percent.[10] Regarding criminal prosecution cases, Hungary plans to create a new judiciary branch that will have the power to force prosecutors to continue investigations or send cases to court, which would address the concern of stifling sensitive cases.[11]

A 2021 study shows that over half of the Hungarian population believes that the government is addressing the corruption issue poorly, while a mere four percent thing it is addressing the issue very well. Courtesy Adobe Stock.

The changes need to be dramatic, but many are skeptical of Hungary’s promises without seeing any action first.[12] “I am not sure that dialogue can facilitate anything in this matter (anymore),” said Czech EU Affairs Minister Mikulas Bek. He is optimistic that Hungary’s financial interests could drive it to make the desired changes given the dire circumstances the country is facing.[13] It is also contested whether Orban’s promises alone will be enough to calm the markets, according to ING economist Peter Virovacz.[14] “The market is waiting for the EU,” said Virovacz.[15] “They want [Commission president Ursula] von der Leyen to come forward and send a positive message, meaning yes, we will make a deal, and quickly.”[16]

Poland is the only other European country waiting to receive post-COVID 19 relief funds from the Commission, on account of controversy over Polish judicial reforms which reportedly subvert democratic standards.[17] Bek said that while Poland has started to work towards a solution, Hungary’s credibility is damaged by its lack of solidarity on certain EU issues.[18] For example, Hungary has recently demanded that the EU drop Russian Orthodox Patriarch Kirill from an anti-Russian sanctions list.[19] Also hurting Hungary’s credibility are allegations of a misuse of previously granted EU cash to enrich Orban’s friends and family.[20] Poland also seems to be at odds with the EU, but it has threatened to retaliate by vetoing EU policy plans that require a unanimous vote if it does not receive its share of the pandemic relief funds.[21]

In the event of Hungary’s failure to reach an agreement with the Commission by the end of the year, the country stands to lose €4.64 billion in COVID-19 recovery funds.[22] Some are worried that releasing billions of euros in recovery funds could trigger fierce backlash in the European Parliament if it appeared that the Hungarian concessions outlined in an agreement do not go far enough.[23] Prominently among these concerns is backlash for controversial laws that banned “homosexual propaganda” in schools and the media.[24] While Brussels maintains that Hungary’s anti-LGBTQ laws are not the reason for withholding the funds, Budapest has held strong to this idea — perhaps to deflect from issues of transparency and corruption.[25]

The issues that Hungary is experiencing in receiving these pandemic relief funds marks another point of contention in an ongoing battle for human rights and government accountability within the country. Hungary’s human rights record has significantly deteriorated during the last decade, most notably with regards to LGBTQ rights, asylum-seekers, refugees, and homeless people.[26] Recent government policies have had a chilling effect on the freedoms of expression and association for journalists, civil society organizations, and judiciary members.[27] Additionally, fear of reporting wrongdoing within the government remains high for fear of persecution.[28] Bribery rates within the government remain among the highest in the EU.[29] A 2021 study shows that over half of the Hungarian population believes that the government is addressing the corruption issue poorly, while a mere four percent thing it is addressing the issue very well.[30] A general apathy towards government corruption has allowed it to persist relatively unchecked for decades.[31]

Securing financial relief to avoid a recession may be the primary incentive that the Hungarian government needs to affect real change, both for the human rights and the country’s basic government operations. The Commission should continue to insist that Hungary make dramatic changes before securing these funds; little else has seemed to work in the past.

[1] Krisztina Than and Gabriela Baczynska, Hungary Pledges Legal Changes to Secure EU Recovery Funding – Govt, Reuters (Aug. 23, 2022), https://www.reuters.com/world/europe/hungary-pledges-legal-changes-secure-eu-recovery-funding-govt-2022-08-23/.

[2] Natalia Drozdiak and Zoltan Simon, Hungary Floats Using EU Funds to Cut Russian Energy Dependence, Bloomberg (June 24, 2022), https://www.bloomberg.com/news/articles/2022-06-24/hungary-floats-using-eu-funds-to-cut-russian-energy-dependence.

[3] Id.

[4] Than and Baczynska, supra note 1.

[5] Id.

[6] Id.

[7] Drozdiak and Simon, supra note 2.

[8] Than and Baczynska, supra note 1.

[9] Hungary Seeks to Unlock €15bn Covid Recovery Funding with New Concessions, Financial Times (July 10, 2022), https://www.ft.com/content/079aa04a-9d44-476c-bfe2-b56835be3660 [hereinafter Concessions].

[10] Id.

[11] Id.

[12] Hungary Must Act to Get EU COVID-19 Funds, says Czech Minister, Reuters (Aug. 30, 2022), https://www.reuters.com/world/europe/hungary-must-act-get-eu-covid-19-funds-says-czech-minister-2022-08-30/ [hereinafter Czech Minister].

[13] Id.

[14] Concessions, supra note 9.

[15] Id.

[16] Id.

[17] Czech Minister, supra note 12.

[18] Id.

[19] Id.

[20] Jenifer Rankin, Hungary Tries to Unlock Funds Frozen Amid EU Disciplinary Process, The Guardian (Aug. 8, 2020), https://www.theguardian.com/world/2022/aug/08/hungary-tries-to-unlock-funds-frozen-amid-eu-disciplinary-process.

[21] Czech Minister, supra note 12.

[22] Rankin, supra note 20.

[23] Concessions, supra note 9.

[24] Id.

[25] Id.

[26] Nils Muiznieks, Human Rights Violations in Hungary Discredit Presidency of the Council of Europe Committee of Ministers, Amnesty Int’l (June 17, 2021), https://www.amnesty.eu/wp-content/uploads/2021/07/Amnesty-International_letterPACEHungary_0621_TIGOIOR1020211786_Update.pdf.

[27] Id.

[28] Balint Mikola, Hungarian Society Deeply Divided Over Corruption, Transparency Int’l (June 15, 2021), https://www.transparency.org/en/blog/gcb-eu-2021-corruption-survey-hungary-polarisation.

[29] Id.

[30] Id.

[31] Id.