Talks on Hungary's blocked EU funds drag out, tug of war between Budapest and Brussels continues

Both the Hungarian government and the European Commission have agreed to waive the 31 March deadline for negotiations on the rule of law procedure, which was originally set by the Viktor Orbán-led cabinet. The government pledged to submit for public consultation and vote on the judicial reform by the end of the month, which, as a horizontal enabling condition, has shelved the transfer of all EU funds.

On the positive side, sources in both Brussels and the Hungarian government have told Portfolio that they expect the two points of contention that have blocked the coronavirus recovery fund transfers to be resolved soon.

They also confirmed that Tibor Navracsics, minister without portfolio in charge of regional development and also Hungary's chief negotiator on EU funds, will travel to Brussels early next week to discuss the so-called Erasmus case.

In early January, the European Commission suspended the right of several Hungarian universities to receive grants in the Erasmus+ and Horizon Europe mobility programmes. The decisions affects universities that were recently transferred to so-called “public interest trusts” or foundations. These are run by boards of trustees which include many figures associated with Orbán’s regime, including members of the current government.

Budapest offered to settle the issue by excluding ministers, state secretaries and government commissioners from the boards of trustees, but the offer was not deemed sufficient by Brussels.

Verbal give-and-take ensued, in which the Commission repeated over and over, slowly and clearly, that the EU means by conflict of interest, while Budapest practically played dumb and claimed Brussels never made it clear what it's beef was with the foundations.

In its counter-proposal, the European Commission has asked that persons with public authority status be excluded from the list of persons eligible for appointment, which would technically apply to the government in a wider sense, in addition to heads of state, but not to politicians.

The other point of contention - and here the parties have not yet reached an agreement - was that while the Orbán government had set a six-year term of appointment for the foundation members, Brussels would set a four-year term, but accepted Budapest's offer to allow a single extension of the appointment .

The government would insist on a six-year period, arguing that this is the financial term of universities and that it would be unwise to change the foundations responsible for their management, while the European Commission favours a four-year period because the members of the Senate who govern the academic life of universities are typically elected for a four-year period.

It is important to note here that, according to our sources, Brussels is thinking ahead, because in the conditionality mechanism on academic freedom, which had 55% of Hungarian cohesion funds blocked, the Senate's power would also be strengthened.

as regards appointments to the foundations, it also needs to be sorted out how long people that give up their political power should be barred from taking a post in boards of trustees.

Another round for the judicial reform

We believe it's only natural that such a revised piece of legislation will require public consultation, a Brussels official told Portfolio on the draft judicial reform.

As we have reported, the Ministry of Justice led by Judit Varga showcased this with alacrity, in January, and it was also subject to public consultation, where Hungarian NGOs also voiced criticism. However, the reform on the appointment of the members of the Curia, the National Office of the Judiciary, the powers of the National Council of the Judiciary, the reform to make it easier for Hungarian judges to appeal to the Court of Justice of the European Union and the reform to take away the right of appeal of public authorities have been the subject of much criticism. The European Commission has also raised a number of questions.

The four demands for judicial reform include:

• strengthening the powers of the National Council of the Judiciary (OBT) vis-à-vis the National Office for the Judiciary (OBH), increasing transparency in the Curia,
• stricter criteria for the selection of the President of the Supreme Court and the appointment of judges, and improving the case allocation system,
• remedying the possibility for public authorities to lodge a constitutional complaint with the Constitutional Court (thus blocking the enforcement of certain court or tribunal judgments, according to the Brussels argument),
• and that Hungarian judges should be able to refer directly to the Court of Justice of the European Union, without their right to request a preliminary ruling being restricted by any Hungarian judicial body (such as the OBT, the Curia or, in extreme cases, the Constitutional Court).

Two diplomats with an insight into the negotiations also told Portfolio that since the initial draft has already been significantly revised, but the Commission is still awaiting answers to further clarification questions, it is very likely that another round of social consultation on the reform will have to be conducted in Hungary.

This generally means a period of at least two weeks, in Brussels' book. However, the European Commission does not yet have a clear position on this, but it is expected that this will be clarified in the next round of consultations with Judit Varga.

If there is a public consultation, and if there are significant criticisms, it could even extend the negotiation and delay the vote on the judicial reform by the Hungarian Parliament.

According to most of our Commission sources, social consultation is also expected in the case of the conflict of interest law on foundations, which would put an end to the Erasmus case. The latter process is watched with particularly keen eyes in Brussels, as the government has already repeatedly used its extraordinary powers in crisis situations as an example of rapid legislation, with laws being passed in a day or two.

It would bad optics if the rule of law procedure were to transgress the norm of social dialogue

a diplomat said, confirming that several requests for clarification had been sent to the Orbán government this week on judicial reform (daily Népszava also reported the same).

Transfer of EU funds could be put off until autumn

No one wanted to make any predictions as to when the two negotiating chapters included in the European Council's resolution could be closed. Moreover, Hungarian government sources and diplomats in Brussels are pointing the finger at each other on this:

• the Commission remains sceptical about Hungarian pledges and confidence is waning,
• and the government says Brussels is stalling.

The loss of confidence was also previously reported in Free Europe, with the paper's sources citing the disputes of the past 12 years instead of the past 18 months. Even in the fastest procedure possible, the two sets of problems could be resolved by the end of April or the beginning of May, so with scrutiny lasting at least a month, the European Commission could issue its assessment as early as June, but more likely by July. And if this is positive, negotiations on payments can start, with the first invoices due to be paid in early to late September, taking into account the summer break of the EU institutions.

Free Europe cited several EU sources as saying that the Hungarian government has only three months left to convince the Commission and the Council to open the EU's long-closed money taps.

There is a risk that the forthcoming European elections (due in spring 2024) will take the issue off the agenda for a long time. This is mainly because Commission President Ursula von der Leyen, who holds the key to the solution, is expected to focus on her re-election. But the European Parliament, whose majority would prefer not to give Viktor Orbán a single euro cent, could have a decisive say in her reelection.

A few weeks ago, Tibor Navracsics was more optimistic, saying that the first EU transfers could be made by the summer.

However, more sceptical sources in Brussels forecast, citing the dynamics of the talks so far, that there is a risk of the negotiations dragging out even further. This is mainly because they saw repeatedly over the past month that Budapest pulled a trick even on matters that were supposed to be clarified and done with.

According to our sources in the government, however, it was Brussels that asked for changes to legislation that had already been approved.

AND ON THE BASIS OF THIS, IT IS EXPECTED THAT THE DEBATE ON THE RESOURCES OF THE RECOVERY FUND (RRF) WILL CONTINUE FOR AT LEAST A YEAR,

given that of the 27 milestones in 21 reform areas, at least 17 will remain to be clarified even after the approval of the judicial reform. According to our sources, fierce resistance is expected especially in addressing corruption risks.

However, this debate has not yet essentially begun, and there are no substantive negotiations on the Child Protection Act, either.

Cover photo: Getty Images.