Hungary looking to wriggle out of EU sanctions

By bne IntelliNews June 11, 2013

Tim Gosling in Prague -

Seeking to avert sanctions, the Hungarian government has offered to drop two recent changes to its constitution that have been challenged by the EU. The European Commission said on June 10 it is now studying the proposal, while Budapest bids to keep the measures alive in other legislation.

Foreign Minister Janos Martonyi announced on June 7 that the government will back down on two of the three specific objections raised last month by European Commission President Jose Manuel Barroso to constitutional amendments pushed through earlier this year. While Budapest said it would drop those amendments concerning the levy of new taxes to cover fines imposed by courts and the ability of the president of the National Judicial Office to move cases from one court to another, it will refuse to repeal a ban on advertising via private broadcast media during an election campaign.

Martonyi claimed that an earlier statement from European Commission Vice President Viviane Reding made it clear that the latter is purely a matter for member countries. However, concerning the other issues, he insisted "the government isn't waiting around for infringement procedures to start but intends to reach a deal with the European Commission before that," according to the Wall Street Journal.

At a press conference on June 10, Commission spokeswoman Pia Ahrenkilde Hansen said the EU executive is in the process of assessing Hungary's proposal, and will respond shortly, reports MTI. However, some analysts claim that Budapest is looking to hoodwink Brussels.

The government's fourth amendment to the constitution that it rewrote completely in 2011 caused a stir when the ruling Fidesz party pushed it through parliament in March. At the time, it shrugged off calls by both Brussels and Washington - who were rattled mainly by the fact that the amendment took away much of the power of the country's constitutional court to block changes to the constitution - for a delay.

Now, however, Budapest faces votes in EU committees - on June 19 and 25 - on two reports criticizing the government's record on democracy and human rights, and calling for closer monitoring of the country's respect for EU standards. In a blog carried by the New York Times, Princeton Professor Kim Lane Scheppele - a staunch critic of Prime Minister Viktor Orban - suggests Budapest's immediate aim is to quash those moves at committee level.

On top of the possible imposition of closer monitoring, the EU has also threatened to launch infringement proceedings against the constitutional amendments. That the EU may be running out of patience following close to two years of conflict looks a more palpable threat.

Back in March, shrugging off the objections to the fourth amendment illustrated the Fidesz government is happy to burn bridges with such centres of power, and the event appeared to leave the markets as the only real potential brake on its policy for the meantime. However, Scheppele suggests Brussels is now making an overdue move to try to rein in Orban's centralization of power. "In short, Europe - in its procedurally impeccable, lumbering way - is starting to do something serious about Hungary," she writes. "So the Hungarian government is working like mad to placate it. Hence the announcement about constitutional amendments."

However, Budapest appears to be trying to pull a fast one. While Martonyi told reporters that the amendment allowing the government to cover the cost of any future European Court of Justice fines by levying new taxes (on those parts of the economy featuring large Eurozone investors most likely), will be dropped from the constitution, the plan is to simply replicate it - in slightly looser language - in other legislation. This way such costs would still be covered if the country were unable to do so from its budget or reserves, Martonyi said.

Concerning the power of the president of the judiciary to transfer cases from one court to another, Martonyi said the cabinet will try to find another way to even out the unbalanced workload of the country's courts.

"The proposed constitutional amendments do not fix problems that Europe has had with the new Hungarian constitutional order," Scheppele notes. "The new amendments may remove some offending language from the constitution itself, but they won't actually change the facts on the ground unless the provisions that will be removed from the constitution are also removed from the other laws, too. And, judging from the press conference, that is still in doubt."

That the foreign minister has no qualms about openly stating the government is ready to hide the same legislation elsewhere, while also claiming to have compromised with the EU, should come as little shock to seasoned observers of the Fidesz administration. While the government's MO is well practiced, Brussels has illustrated several times that it will pull its punches when the crunch comes.

In late May, the EU let go of perhaps its most potent point of leverage when it approved Hungary's exit from the Excessive Deficit Procedure. The threat of suspension of around half a billion euros in cohesion funds and a likely palpable hit on market sentiment - a vital factor for Budapest given the vulnerability of the forint and the level of foreign currency debt in Hungarian households - evaporated on the back of proposed new taxation, including on those previously mentioned sectors featuring pummeled Eurozone investors.

Scheppele claims Brussels has another opportunity to rein in Fidesz; past evidence suggests it's unlikely to take it. "The Hungarian government desperately wants to avoid sanctions from Europe. It will therefore appear to tinker endlessly with its laws in order to give the impression that it is still in a "dialogue" with European bodies," she writes. "But by now, Europe should see what the Hungarian government is doing."

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