The situation of the Hungarian public accounts is the great Achilles heel of the Government of Viktor Orbán. After years of tug-of-war with Brussels due to the mistreatment of the ultra-conservative Executive of Fidesz to the rule of law, the economy has forced the veteran politician to agree with the European Commission the implementation of a package of measures against corruption so as not to lose the gasoline with which he sustains his Administration, based on patronage. The European Commission has proposed the suspension of 7,500 million euros of EU cohesion funds for Hungary for promoting “systematic corruption” in the management of money from the community budget.
The decision, however, has come accompanied by a pre-cooked agreement with Budapest. To avoid the snip of funds, Hungary commits itself, for example, to receiving every two months the men in black of Brussels in matters of corruption, who will monitor not only that the country complies, but also that they will put corruption in the public eye. “Hungary is fully committed to the implementation of the measures arranged to protect and improve the fight against corruption of the European budget”, declared the Hungarian Minister of Justice, Judit Varga, upon her arrival at a meeting of the Council of the EU . Varga, one of Orbán’s closest allies, has asked the other countries of the Union to be “tolerant, positive and constructive” with her country.
It is a bad time to lose European funds for Orbán, who has dominated tightrope walking for years to escape the stings of Brussels due to his authoritarian drift and who could still pull a card up his sleeve. For this year, Budapest has proposed to reduce the deficit to 4.9%. The objective is, according to Goldman Sachs, “feasible” because, for now, the economy is growing at a good pace. But this horizon has many possibilities to change in the short term. “There is a pronounced slowdown in growth and a very strong option that there will be a recession in the short term,” the US investment bank abounds.
In addition to the deficit, other elements such as the current account balance, inflation, which is close to 20%, or interest rates lead Hungary to need European funds. In the previous EU budget cycle (2014-2020), the manna that arrived from Brussels represented an amount equivalent to 4% of Hungarian GDP (an amount close to 7,000 million if the GDP of 2020 is taken as a reference). With this money, the Orbán Executive drew up a good part of its economic policy and established the growth of those years, which in several years exceeded 4% of GDP.
€6 billion in outstanding grants
Now these resources could even be higher if Budapest finally complies with the demands of Brussels, both in terms of the conditionality mechanism and the recovery fund created to solve the ravages of the pandemic, for which Hungary corresponds to some 6,000 million euros in grants. “A possible decrease in transfers from the EU to the Government – if prolonged – would increase the already great budgetary pressures experienced by the Hungarian Government”, underlines the global economic consultancy Morningstar.
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Analysts from both companies conclude that in the immediate future Orbán will have no choice but to apply the corrective measures requested by Brussels to redress his attacks on the rule of law due to “high fiscal pressures”. This would mean that Budapest would already have to approve the reforms that he has committed to with Brussels during his negotiations this summer, which have concluded with the proposal to freeze 7.5 billion euros. Likewise, the negotiation of the recovery plan, stalled since December last year, when Hungary sent its proposal, should be unblocked once and for all.
To give it the green light, the Commission is once again demanding anti-corruption reforms and reinforcing the rule of law, something Orbán resists. But time is running out, because the Community Executive interprets that if the plan has not been approved before December 31, it loses the possibility of receiving 70% of the total amount.
Hungary and its authoritarian drift has been a headache for Brussels for years. Budapest’s constant attacks on the rights of LGBTI people and attacks on the independent media have been increasing. Also corruption, on which the European Commission has focused. A report from Brussels defines Hungary as a “systemic” problem that is on the rise and points out that the Orbán government has had an “unwillingness” to avoid cases of patronage in public procurement and conflicts of interest. This report, which the Commission has also sent to Budapest, ensures that the probability that companies “politically connected” with the Government obtain a public contract is between 2.5 times and three times greater than companies without that link, according to the study of tenders for the period 2005-2021.
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