European Commission clears Hungary RRF plan but links payouts to 'super milestones'

European Commission clears Hungary RRF plan but links payouts to 'super milestones'
Commission President Ursula von der Leyen with Hungarian premier Viktor Orban. / bne IntelliNews
By Tamas Csonka in Budapest December 1, 2022

The European Commission has approved Hungary's Recovery and Resilience Facility (RRF) plan, but it made payouts conditional on the "full and effective" implementation of remedial measures defined in a set of 27 "super milestones." The announcement was in line with expectations.

The EC recommended keeping €7.5bn of Hungary's Cohesion Fund allocation frozen until the country takes steps to address concerns over the rule of law. Hungary had been given a November 19 deadline to implement 17 measures in the framework of a Conditionality Regulation procedure, launched for the first time against an EU member state.  

European lawmakers last week put pressure on the Commission and Council, which represents the bloc's 27 countries, with a resolution asking them to freeze the funds.

The EU executive made its initial proposal on September 18 on the suspension of three operational Cohesion Funds from the 2021-2027 budget. The Council has until December 19 to vote on the suspension of the funding based on the EC’s proposal.

Any action to suspend the funds must be approved by the EU member countries, and this requires a "qualified majority,'' which amounts to 55% of the 27 members representing at least 65% of the total EU population.

"No payment under the RRF is possible until Hungary has fully and correctly implemented these 27 'super milestones'," the EC said.

The EC explained these include all the 17 remedial measures agreed on in the framework of the conditionality procedure, such as steps to combat corruption, improve competition and transparency in public procurement, strengthen rules on conflicts of interest, increase audit and control requirements, use the EC's Arachne risk-scoring tool and ensure that the European Anti-Fraud Office (OLAF) can effectively conduct investigations in Hungary.

They also cover measures to strengthen judicial independence, including increasing the powers of the independent National Judicial Council, reforming the functioning of the Supreme Court to limit risks of political influence, removing the role of the Constitutional Court in reviewing final decisions by judges on request of public authorities, and removing the possibility for the Supreme Court to review questions that judges intend to refer to the European Court of Justice

At the press briefing, EC VP Valdis Dombrovskis said the EU's executive had worked "intensively" with Hungarian authorities on the RRF plan "over many months".

"When carried out, it should bring about positive change in Hungary, create jobs and growth and make the Hungarian economy more inclusive and resilient for years to come," he added.

Hungary is the last EU member to have its RRF plan approved by Brussels after 15 months. Budapest risked losing some 70% of the €5.8bn fund if there was no agreement before the end of 2022.

The head Hungarian official in charge of the talks said the approval of the RRF facility was a "significant step forward".

At a press conference in Budapest, Regional Development Minister Tibor Navracsics said the national RRF plan got the "highest marks", except for one area, and was "among the best" of all European Union member states' plans.

According to the EC, Hungary would allocate 48% of the funds to support climate goals and is expected to "contribute significantly" to reduce Hungary's dependence on Russian fossil fuels and "fast-forward" the decarbonisation of the economy. Close to 30% of the allocation will support digitalisation.

The EC noted that the RRF plan also includes a "comprehensive set of key institutional reforms to strengthen the rule of law" that "effectively address" country-specific recommendations and "serve to protect the financial interests of the Union".

Navracsics said the government would fulfill its remaining commitments "with the same precision and thoroughness" as its earlier commitments in the framework of the Conditionality Regulation procedure, clearing the way for access to 100% of Hungary's EU funding in 2023.

Navracsics said the approval of the RRF plan paves the way for final talks on Hungary's Cohesion Fund allocation, allowing the country's Partnership Agreement for 2021-2027 resources to be signed by year-end, too

At a press briefing after the announcement, head of the Prime Minister's Office Gergely Gulyas blasted opposition Hungarian MEPs, accusing them of "incitement" and pushing for harder sanctions.

Fielding questions, he said HUF2.5 trillion (€6.1bn) of EU funding could arrive in the second half of the year. The government has been pre-financing EU-funded projects from the central budget and will continue to do so until transfers come from Brussels, he added.

Opposition parties said that the EC recommendation to keep EU funds frozen is the clear responsibility of Prime Minister Viktor Orban, who had established a corrupt and anti-democratic system in Hungary in the last 12 years.