Viktor Orbán threatens EU with veto in vain, Hungary is in a financial trap

In a radio interview on Friday morning, Prime Minister Viktor Orbán threatened to throw yet another wrench into the on European Union's decision-making process, indicating that he will not accept any loss of resources.

He said that "Hungary has more than €12 billion in its account", which he said would cover the financial needs of the Hungarian economy until 2026.

"We'll get some money even on top of that, and whether or not it will be a problem after '26. My view is that we will of course get that too. We will get it because negotiations have started on the post-2027 seven-year EU budget, which requires unanimity to be adopted.

What I can say for sure is that the money that we didn't get in '25-'26, we should get in '27-'28. Otherwise there will be no budget for the Union, I will not approve,

he said.

Orbán would essentially veto the next seven-year common budget not now, but in the second half of 2026. However, this debate may take a long time to start, as Budget Commissioner Piotr Serafin is still preparing the guidelines for a complete overhaul of the current tripartite system of agricultural aid, cohesion funds and direct financial instruments. The European Commission is preparing a reform of the Multiannual Financial Framework (MFF), bringing all EU funding into a single fund.

Which funds are available for Hungary and which are the ones that it will lose?

Hungary is eligible for around €21.8 billion in EU cohesion funding in the 2021-2027 programming period, of which just over €2 billion has been received by October 2024, or 8.3% of the total allocation. But with part of the cohesion funds blocked, this is 16.8% of the €12.2 billion available.

In November 2022, the European Commission proposed to suspend €9.5 billion of cohesion funds due to rule of law concerns, with the release of these funds conditional on the implementation of necessary reforms. The government has not made any progress on these this year, which means that

by the end of December 2024, the Hungarian budget will have lost more than €1 billion of EU funding under the N+2 rule.

Under the above rule, if EU funds blocked over rule of law disputes are not released within two years of the start of commitments - essentially from the Partnership Agreement - they will be irrevocably deducted (automatic decommitments) from the available budget of the Member State concerned.

So Viktor Orbán was referring to the loss of these funds.

legally, neither the European Commission nor the European Council has any means in this matter to reverse the final loss of resources in the next MFF debate.

The n+2 rule is included in the 2021-2027 MFF and is legally binding. EU law does not even provide a framework for such a review, so the Hungarian government could only ask for a review of the current loss of just over €1 billion in resources if it could prove to the Court of Justice of the European Union that the financial corrective measure does not comply with EU law. 

For other sources, the n+2 rule does not apply, which is good news for Hungary, because in principle it can only record a loss of resources on one financial asset.

It is still quite possible that recovery funds will be lost for the hungarian budget.

Under the Recovery and Recovery Facility (RRF), Hungary has access to around €5.8 billion in grants and over €4.6 billion in loans. Of this, an advance of €890 million was received in December 2023 and early 2024 as part of the REPowerEU package, which supports energy modernisation and the uptake of green energy. However, the disbursement of the remaining funds is subject to additional conditions, including the fulfilment of transparency and anti-corruption measures of the so-called super-milestones.

There is no financial brake built in, but under the current rules Hungary could still lose 60-65% of the aid in a best-case scenario!

when it comes to the RRF, Brussels will only pay for the completion of projects and their associated implementation milestones if the projects are delivered by 1 June 2026.

With HUF 1,140 billion of RRF funds disbursed so far out of the roughly HUF 2,300 billion of grants and HUF 1,900 billion of loans available, the next 18 months should see a big ramp-up in aid allocation.

According to data from tenders.gov, the government has started implementing 34.1% of the programmes, or only HUF 1,427 billion, of the total amount of funding currently awarded.

There is another important leg of subsidies that is not affected by any EU restrictions: around HUF 5,000 billion is available to Hungary under the Common Agricultural Policy.

But there are deductions to be made here too. In July, the European Court of Justice of the EU imposed a lump-sum fine of €200 million on Hungary along with a €1 million daily fine for every subsequent day the government fails to implement the necessary changes to its legislation on asylum procedures.

The daily fines have already reached over €400 million (HUF 165 billion), which the European Commission can deduct from any payments due to Hungary in a so-called offsetting procedure.

This means that CAP funds could also be affected by the deduction of €600 million (HUF 250 billion).

If the situation were not already complicated enough, there is another factor that means Hungary can essentially spend less than part of the €12.2 billion in cohesion funding on paper: it overcommitted by 30% in the 2014-2020 fiscal cycle.

The EU will not reimburse the amounts over the grant ceiling, which left the government with two options: to reclassify the grants as failed EU tenders, increasing the Hungarian budget deficit by removing the funds from the ESA bridge under the EU's accrual accounting rules.

However, some of the projects that were not closed could be transferred to the MFF 2021-2027 budget. This, in turn, reduces the current Cohesion Fund envelope for new investments. It is difficult to estimate the level of commitments for which this method has been used,

but according to the data on palyazatok.gov (eu tenders website), cohesion funds still available for allocation represent just 7% of total EU funding.

Not much to veto, and this has already been an unsuccessful strategy

Few decisions in the life of the European Union are as important as the adoption of the seven-year budget plan, the Multiannual Financial Framework (MFF). This document sets out how the European Union allocates its resources in areas such as agriculture, climate protection, research and development and regional cohesion.

A veto from a single member state is enough to stall the process and put the EU's financial functioning in a precarious position, meaning that Viktor Orbán's threat could cause serious problems.

The veto has an immediate impact on the adoption of the budget, as it requires a unanimous decision of the 27 member states. If this is not achieved, the EU will switch to a system of so-called "provisional twelfths", whereby one twelfth of the previous year's total expenditure (plus indexation) can be spent each month.

While this ensures basic functioning, it may make it impossible to finance new initiatives such as a green energy project or cohesion funding for less developed regions. This uncertainty has serious consequences not only at political level but also at economic level.

This is why the veto is rarely just about the budget. Rather, it is used as a political tool. A country can protest against disproportionality in resource allocation or political priorities related to the budget.

A memorable example is from 2020, when Poland and Hungary threatened to veto the EU's decision to make the allocation of funds conditional on the rule of law.

The negotiations that followed lasted for weeks, but in the end the rule of law conditionality remained intact, only the preamble included the Hungarian-Polish demand that the conditionality procedure should not be used because of migration-related issues.

However, blocking is a double-edged sword: at the political level, a vetoing country can be criticised for obstructing the EU's work, but it can also gain support among those who express similar concerns.

In extreme cases, if unanimity proves unattainable, the EU can use alternative mechanisms, such as voluntary enhanced cooperation between Member States or intergovernmental agreements outside the budgetary framework.

However, the budget debate in 2026 is still a long way off: on the one hand, the EU enlargement plans are likely to lead to a completely different kind of budget, so we know that the debate will be about the MFF, but we don't know what the framework will be.

Secondly, the European Union is now discussing the reform proposals of the Draghi and Letta reports to improve competitiveness. Both packages propose new joint borrowing similar to the NextGenerationEU, but with more involvement of private capital to support cohesion aid policy by implementing the Capital Markets Union.

In addition, the European Commission, under pressure from the EP, is planning to bypass national governments in the allocation of resources and distribute funds directly through local authorities. Technically, this could already be possible for the 2021-2027 budget currently in force.

There will be no room for political games about the EU budget in the near future. The 2025 budget, drafted by the Hungarian EU Presidency, has already been adopted by the Council, and is now awaiting the final vote of the European Parliament.

Cover photo: Hungary's Prime Minister Viktor Orbán at the press conference after the informal EU summit in Budapest on 8 November 2024. Source: EU/Dario Pignatelli.