Hungary ready to make concessions for RRF funding

Hungary ready to make concessions for RRF funding
Hungarian premier Viktor Orban with EU Commission President Ursula von der Leyen.
By bne IntelliNews July 12, 2022

Hungarian officials claim that an agreement on the country’s Recovery and Resilience Facility (RRF) funding now depends only on the European Commission, as the government has accepted the body's stand on disputed issues.

Gergely Gulyas, the head of the Prime Minister's Office, in a recent interview said that in a letter sent to the EU's executive body, the government has made concessions and that an agreement is now a technical issue.

Hungary submitted its RRF plan 14 months ago together with its request for the cohesion funds for the 2021-2027 budget period, but neither has been approved by Brussels, citing a lack of transparency in public procurements and high level of corruption.

Hungary has requested €7.2bn in funding from the EU’s recovery fund, but based on Hungary’s 2020 and 2021 economic performance, the final amount would come to €5.9bn.

The government initially turned down the other leg of the RRF facility, a €9bn loan, but was forced to make a U-turn after facing the fallout of a massive pre-election spending spree and the deteriorating fiscal balance.

Budapest is in dire need of sealing a deal with Brussels on access to vital EU funds to prop up its ailing currency and shore up public finances. The fiscal adjustment announced so far has done little to console investors.

The HUF800bn (€2bn) windfall tax is not a market-friendly way of consolidating the budget, according to analysts. An agreement with the EU could bring imminent relief to the market and reverse the slide of the forint, they said.  

Based on comments by Gulyas, Hungary has made a commitment to reduce the ratio of single-bid public procurements to under 15%.

The government will take steps to allow legal recourse regarding decisions by the prosecutor general in cases involving corruption; it will reduce the use of expedited procedures in legislating to address the EC's recommendation on social consultation, and it will use a "significant" part of EU resources to boost the country's energy independence, he added.

Hungary will modernise the country’s second-largest power plant, Matrai Eromu. The lignite-fuelled power plant accounts for 50% of the country’s CO2 emission and 15% of its electricity need. Three gas-fueled power plants with a capacity of 500 MW will be built over a period of two to three years.

A significant hike in teachers' salaries is also among the conditions for access to EU funds, according to local media. Teacher salaries are the lowest among the EU countries that are OECD members and are equivalent to only 58-66% of the salaries of other tertiary graduates, according to the EU’s country report. Some 10% of positions are vacant and the situation in poor rural areas is critical.

The Orban government claimed that Brussels was blocking the RRF funds over the country’s controversial anti-LGBT regulation. The government has used that argument over the course of the last 12 months, but there may be a shift in communication.  

Hungary’s Minister for Regional Development Tibor Navracsics told commercial television Atv in a recent interview that the legislation that stigmatises LGBT people and conflates sexual and gender diversity with paedophilia was not the reason why the EU had been withholding the funds.

Monday’s meeting between Navracsics, Hungary’s former EU commissioner, with Budapest’s liberal mayor could also mark a turning point. Mayor Gergely Karacsony welcomed the establishment of the regional development forum that is supposed to coordinate development proposals made by the government and the city of Budapest for EU-funded infrastructural projects.