Budapest to amend law to appease EU over Erasmus ban, but it won't succeed

In late 2022, the European Commission suspended the right of more than 30 Hungarian institutions, including 21 universities, to receive grants in the Erasmus+ and Horizon Europe mobility programs. These universities had been previously transferred to so-called “public trust foundations” in an unprecedented wave of privatization. These trusts are run by boards of trustees which included many figures associated with Prime Minister Viktor Orbán’s regime, including government members.

Now, the government wants to amend the law to clarify conflict of interest rules in the board of trustees of these public interest trusts.

Hungary's Minister for Culture and Innovation Balázs Hankó said about 1.5 weeks ago that the government submitted a document to the Commission nine months ago addressing concerns about academic freedom and transparency principles that led to the ban.

Hungarian researchers and students are waiting to hear the reasons for their continued exclusion, he said.

Hankó was appointed minister only in mid-June this year, so maybe he did not have time to catch up, but we'd like to help him answer the "researchers and students" awaiting an explanation for the funding ban.

On 15 December 2022, the Council has released its decision "on measures for the protection of the Union budget against breaches of the principles of the rule of law in Hungary." Thisdocumentlists the problems with the public interest trusts and also proposes a solution to protect the EU budget, which - as a first step - is more like a penalty, e.g. the freezing of funds.

“[…] there are concerns regarding the non-application of public procurement and conflict of interest rules to ‘public interest trusts’ and the entities managed by them, and thelack of transparency with regard to the management of funds by those trusts.

“Hungary did not provide any evidence on the applicability (nor the application in practice) ofconflict of interestrules relevant for the protection of the Union budget in relation to public interest trusts.

“The appropriate measures should also concern actions under Union programmes implemented under direct and indirect management, for which public interest trusts and the entities maintained by them,which are considered as government entities[…], may be beneficiaries or implementing entities. As regards the identified breaches relevant to public interest trusts, all Union programmes implemented under direct and indirect management should be targeted by the appropriate measures.

“[…] the regulatory framework stilldoes not preventtop-level officials, including senior political executives from the National Assembly and Hungary’s autonomous bodies, fromsitting on boards of public interest asset management foundations, as repeatedly requested by the Commission.

“Moreover, Hungary has reintroduced as of 1November 2022 the possibility (by means of an exception from the general prohibition) for senior political executivesto have other remunerated employment, including on boards of public interest asset management foundations.

“The Council considers that for these reasons as further set out in the Commission’s communication, the weaknesses of the regulatory framework combined with the new legislative developmentsaggravate the possible conflict of interestthat the remedial measure was meant to address and therefore renders it inadequate to address the concerns originally raised by the Commission.

“Concerning the identified breaches in relation to public interest trusts, the regulatory framework in Hungary has weaknesses, as set out above, which havenot remedied the risk of conflict of interestthat the remedial measure was meant to address.

“In light of the inadequacy of the remedial measure, a serious risk for the Union budget remains and can best be addressed bya prohibition on entering into new legal commitments with any public interest trustand any entity maintained by them under any programme under direct or indirect management.

“Such a measuredoes not affect the overall allocations of fundsfrom Union programmes under direct and indirect management which may still be used for other entities and is therefore sufficient to achieve the protection of the Union budget while being proportionate to what is strictly necessary to achieve that objective.”

“We decided not to wait any longer for Brussels’ answer,” Hankó told a press conference.

We will submit the regulatory proposal to the parliament. We trust that our regulatory proposal will resolve the silence and resolve the situation,

Business Science cited him as saying. Hungary's state newswire did not issue a report on the ministerial talks on the future of European research and education that took place in mid-September.

Hankó also complained that Marc Lemaître, EU director general for research and innovation, did not attend a post meeting press conference, perceiving this as a slight and a reflection of the funding row. “You can see that it is not easy to work with the Commission,” he said. “Our cooperation is not without problems.”

With Hungary holding the rotating presidency of the EU Council, EU research and higher education ministers were meeting in Budapest on September 16 and 17, to address the gaps in the European innovation system and discuss how to strengthen competitiveness.

Now, as promised by the Minister, the tightened conflict of interest rules for trustees of public interest trusts have been sent out for public consultation.

The EU executive was concerned that the changes introduced by the government would undermine academic freedom and transparency. In particular, the unlimited re-election of trustees, the excessive length of terms of office and the non-exclusion of politicians were considered worrying in Brussels.

"The mandate of the board of trustees is indefinite, and in 2020, Fidesz amended the constitution, which now states that trustees of public interest trusts can only be replaced by a two-thirds parliamentary majority. Thus, a new law on foundations would not retroactively revoke the appointment of trustees. That would require either another constitutional amendment or a snap vote to recall problematic actors one by one. Unless they all resign voluntarily," wrote whistle blower site Átlátszó in early 2023.

It has been known for about a year that the European Commission expects members to be re-electable only once to the boards of trustees of university governing bodies, not to hold public political office, and if they resign, to have a two-year cooling-off period before they can be appointed to the boards of trustees.

They also expect that a mandate should be for a maximum of four years. The Commission has informed the Minister of Public Administration and Regional Development, Tibor Navracsics, who was previously in charge of the negotiations, of this on several occasions in 2023.

Now, however, the regulation in the public consultation still does not meet the expectations of the EU executive.

They only made an exception that the rules would apply to the public interest trusts using EU funds, and set a six-year term of office for members of the boards of trustees and supervisory boards of foundations. They did, however, adopt the requirement of a one time re-election to a board of trustees.

No one holding a political or public position of authority could be a member of the Board of Trustees or Supervisory Board (e.g. Members of Parliament, mayors, ministerial commissioners, etc.). These rules would ensure that trustees are independent of politics and other positions that create conflicts of interest.

The heads (members of the board of trustees or the supervisory board) of a grant-aided foundation are required to make a declaration of assets at the beginning and end of their term of office.

This declaration must be made under the Parliament Act and is deposited with the Property Controller. The Integrity Authority controls asset declarations relating to the use of EU funds.

What the European Commission did not accept earlier was that the selection process for members of the foundations was not clear. To this end, the Hungarian government recommended last year that people could be invited to join the boards of trustees and that their acceptance would be verified by the State Audit Office (SAO).

This is now fine-tuned in the draft to the extent that the SAO would be responsible for checking that officials comply with conflict of interest rules and that their independence, integrity and impartiality are guaranteed.

however, the commission previously considered the state audit office's such judgement unacceptable.

With negotiations stalled, academics have become increasingly isolated. In August, the Hungarian Young Academy said the ban could damage the reputation of Hungarian science.

While Hungarian academics cannot obtain EU grants, they are eligible to take part in Horizon Europe projects if they have an alternative source of funding. Earlier this year, Lemaître asked national contact points to spread the message that Hungarian participants can still join the programme.

What the EU body did not expect, however, is that the proposal specifically states that public interest trusts can only receive EU funding if they comply with the new rules. This means stricter transparency and conflict of interest requirements, which would be monitored by the State Audit Office and the Integrity Authority.

With almost all the 'model-switched' universities and research institutes already excluded from the Erasmus and Horizon programmes, the Orbán government launched the HU-rizon and Pannonia Scholarship Programmes, which are domestic alternatives to European programmes to support scientists from excluded institutions. However, barely a hundred people applied for these, so they did not become viable alternatives.

Cover photo (for illustration purposes only): Getty Images