Hungary expects deal with EU in rule of law procedure - minister
Rule of law conditionality mechanism triggered
In an unprecedented move, the European Commission has triggered its rule of law mechanism against Hungary due to long-standing concerns over the persistent misuse of EU funds by nationalist Prime Minister Viktor Orbán’s government. The stern message to Hungary is simple: fix your rule of law problems or risk losing EU funds.
On the rule of law case Gulyás told journalists today that the price of war should not be paid by the Hungarian people.
We have studied the Commission's letter and there is nothing to prevent the signing of an agreement on the recovery fund. We have found a common solution everywhere, even where we disagree with the legitimacy of the proposal. There is no point where there is either no agreement or a solution that is acceptable to both the Hungarian government and the Commission,
he said.
There is no obstacle to signing the recovery fund, Gulyás stressed. When the agreement will be signed remains to be seen.
Child protection, issues to be clarified
The letter from the European Commission has a lot to say, but the EU executive is basically asking questions in it. They mention whether they see any issues that need to be clarified, Gulyás said in response to a question on whether the EU letter contains anything on child protection.
The Orbán government began drafting a 'child protection law' last June following a number of pedophilia scandals. Beginning as an “anti-pedophilia law,” they soon amended it with parts many found restrictive to the LGBT+ community, something that has naturally sparked criticism both domestically and internationally.
The government held a referendum on the topic as well, together with the elections on 3 April, but more than 1.7 million people voted invalidly, and the referendum was invalidited. (What's really sad about the whole issue is that 3.6-3.7 million people voted in support of the government's agenda.)
Gulyás did not answer the question whether the letter includes child protection issues. He stressed that the Commission did not greenlight Hungary's recovery fund because of the adoption of the Child Protection Act. In fact, the EU executive has been highlighting the need for more effective anti-graft measures.
Gulyás could not say whether the Commission's letter included the child protection issue, but said that this matter was always addresed during the discussions.
He stressed the need to reduce the number of single-bid procurements. There were questions about the appointment of judges, but this had also been resolved. According to Gulyás, the issues raised are not insoluble.
The issue cannot legally reach the point where Hungary loses money because of the EU procedure. Anything can happen on political grounds, though,
said Gulyás.
In response to the questions raised in the letter, all obstacles have been removed during the RRF negotiations, he stressed. "For our part, we are ready to sign an agreement on the recovery funds at any time," he added.
Russian gas will keep flowing in
We are trying to be prepared for any situation, he said, when asked what would happen if Russia turned off the gas taps to Hungary.
Russian energy giant Gazprom said on Wednesday it had halted gas supplies to Bulgargaz (Bulgaria) and PGNiG (Poland) for failing to pay for gas in roubles,. This is the Kremlin's toughest response yet to sanctions imposed by the West over the invasion of Ukraine.
He added that Russian gas and oil cannot be replaced overnight. If we want heating, if we want our homes to be warm, our cars to run, our economy to work, we will buy Russian gas and oil, he stressed.
Gulyás underlined that Gazprom will not terminate the contract with Hungary "because we are fulfilling our obligations."
Gazprom fulfils its contractual obligations to Hungary, and we judge our partners on this basis, Gulyás said, when asked whether the Russians are considered reliable after they turned off the tap to Poland and Bulgaria.
"Other countries have also accepted the Russian request to pay in roubles. We have announced this because we are honest," Gulyás said when asked why Hungary was the first to accept the Russians' request. He said other countries had accepted it, but they had not announced it.
European Commission President Ursula von der Leyen has condemned Russia for seeking to “blackmail” Europe after Russian energy giant Gazprom confirmed that it had cut gas supply to Poland and Bulgaria. She assured that Europe is prepared for this scenario.
Hungary is paying in euros for Russian gas, which Gazprombank is converting into rubles, Gulyás said, referring to a recent Bloomberg article. This is what Hungary and nine other EU countries are doing, he added.
Interestingly, the Bloomberg article referred to does not mention nine other countries, but four European gas buyers that have paid for supplies in roubles and ten European companies that have already opened the accounts at Gazprombank needed to meet Russia's payment demands.
Were other buyers to reject the Kremlin's terms, more cut-offs after Gazprom halted gas flows to Poland and Bulgaria are unlikely until the second half of May when the next payments are due, a person close to Gazprom told Bloomberg.
When will the price freezes be finally lifted?
It is not possible to say how long we will be able to maintain the price freezes, because the situation is changing rapidly, said Gulyás. So it is not possible to know how long they will be in place, he added.
It depends on the war and how the external environment changes, Gulyás said, referring to the sanctions against Russia.
Hungary's Prime Minister Viktor Orbán has announced the extension of the price freeze on motor fuels and certain foodstuffs on Facebook on Wednesday.
As we wrote in an analysis yesterday, the food price cap and its extension was and will certainly be welcomed by consumers, but less so by the retail and food industries. Their costs have risen sharply, especially since the start of the war between Russia and Ukraine, which they have not been able to pass on in their prices, and (unlike the freezes on overheads and fuel prices) the state has not helped the food sector in any way to cope with the losses.
The bulk of the costs are borne by multinational chains, said Gulyás, responding to the question of whether retailers will be compensated for the price freeze.
Small petrol stations are not in a good position and will close from 1 July if they do not receive sufficient subsidies from the state, warned the President of the Independent Petrol Retailers' Association (FBSZ), who talked with several media after the government decided to extend the price freeze on motor fuels.
In response to a journalist's suggestion that 90% of smaller pumps could go bust because of the price freeze and should therefore receive compensation, he said that the suggestion that some filling stations should receive compensation is unenforceable. The wholesale price [of the 95-octane gasoline and diesel] is 480 forints, small pumps receive a compensation of HUF 20 per litre, Gulyás said.
"Every anti-market measure has its price. This too. We have to consider whether the benefits are greater. We believe there are more benefits, that it [the price cap] has a positive impact on inflation and the economy, and that is why we are maintaining it. We have done our best to mitigate the loss of small service stations," he added.
The price caps and the reduction of overheads for households work, we will try to maintain these, he reiterated.
Major war-related inflation has hit the whole of Europe. A cap on prices and overheads has already reduced inflation (still around 8.5%) by more than five percentage points. Without the measures, inflation would be above 13%, Gulyás stressed. That is why the price freeze on food and fuel has been extended until 1 July.
The government should prioritise the protection of families over the correct market logic,
he said.
He indicated that before the price freeze expires, they will re-examine whether it should be maintained.
Pension hike
At the beginning of the year we set the pension raise to 5%, which is below the rate of inflation. Inflation could be 8.9% this year according to the central bank and the government, but there is a lot of uncertainty. The gap is significant, so pensions will increase by 3.9% from the beginning of July. Pensioners will receive their benefits for the previous six months all at once, said Gulyás.
Fiscal adjustment
In the period of the coronavirus pandemic, the deficit has increased as the economy had to be kept 'alive', and the shortfall must now be reduced. Due to the war in neighbouring Ukraine (which was attacked by Russia on 24 February), new measures will be needed to achieve the deficit target, he said.
THE BUDGET deficit MAY WELL NOT RETURN TO BELOW 3% UNTIL 2024.
But the problem with all forecasts is that the economic impact of the war is such that there are always at least three scenarios for planning. Depending on when the war ends, that's a burden of hundreds of billions of forints a month.
We consider the cuts to residential overheads to be a good measure. Now energy prices have increased three, four, five fold. Meanwhile, it is obvious that the budget must be balanced. So measures will be needed to keep overheads low. We are calculating what it will cost to maintain this measure, whether we need to change the rules. We are working to ensure that Hungarian families do not have to pay more for their utility bills, said Gulyás, adding that SMEs have had a competitive advantage in accessing energy at these prices, he said. "We are not there yet to decide on these, but we will do so in the first half of the year," he added.
Growth
The government had forecast GDP growth of 5.9% in the budget. There is no doubt that the war situation is hurting growth, not helping it. Therefore, growth will be lower than the government's target, Gulyás stressed. However, he stressed that he was more optimistic than Moody's, which expects growth of 2.7%.
Cover photo: MTI/Noémi Bruzák
