Hungarian lawmakers approved a set of reforms to improve judicial independence by an overwhelming majority on May 3, with the aim of unlocking vital funds frozen by the European Commission.

The legislation, coming into force on June 1, is part of the 27 super milestones the the Orban government has to meet to access EU funds. EU member states decided last December to suspend €6.3bn of EU budget funds for the 2021-2027 budget period and hold back €5.8bn of RRF funds due to concerns over the rule of law, corruption and lack of judicial independence.

The EC made the payout of the €5.8bn in grants conditional on the fulfillment of 27 "super milestones" regarding institutional reforms to strengthen the rule of law. The legislation restores the independence and expands the scope of power of the National Judicial Council (OBT), the self-governing body of judges, reversing some of the changes introduced by the government in the mid-2010s.

The OBT will have an opinion on draft legislation affecting the judicial system, but not the right to veto. Opposition parties abstained from the vote as they called for extending OBT’s powers further.

EP Vice President  for Values and Transparency Vera Jourova welcomed the adoption of laws but said the legislative package represents only four of the 27 conditions set by the European Commission. Before Hungary could access the first tranches of the transfer, a positive assessment by the European Commission and acceptance by the member states is needed, which will take several months, she added.

The issue of unblocking frozen EU funds was at the centre of talks between Prime Minister Viktor Orban and European Commissioner for Budget and Administration Johannes Hahn a day earlier. Orban was joined by Regional Development Minister Tibor Navracsics, Justice Minister Judit Varga and State Secretary for European Affairs Janos Boka. Neither party released a statement after the talks.

Hungary is one of the five member states that have not received RRF funding, while the delay in the transfer of the funding to Hungary will have a negative impact on competitiveness and growth, Finance Minister Mihaly Varga said. GDP growth, which reached 4.6% last year, would have been over 5% if the country's EU funding hadn't been held back, he added.

The freeze on the EU funds has caused serious problems for the Hungarian economy this year, forcing the government to cut spending, while the central bank maintains high interest rates to restrain the highest inflation rate in the EU.

ING bank this week downgraded its growth expectations for 2023 from 0.7% to 0.2% because of subdued consumption and investment. It predicts the current recession, which began in mid 2022, to last until the summer, with a fall of 0.8% y/y in the first quarter and 1.0% in Q2. It says the government budget deficit target of 3.9% of GDP remains realistic.

"Going forward, we anticipate a modest economic rebound in the second half of 2023 as inflationary pressures are alleviated, but domestic demand will remain weak throughout the year," ING said