For more than a decade, Hungary’s prime minister Viktor Orbán has been locked in battle with the European Union over the democratic rules that Brussels expects E.U. member states to uphold. His commitment to “illiberal” Christian democracy has long since become a flashpoint. An E.U. report released earlier this month accuses Orbán of transforming Hungary into an “electoral autocracy” in which the prime minister has made “deliberate and systematic efforts” to undermine E.U. values.
Orbán, a talented populist who has built his public popularity by picking fights with Eurocrats, insists he is merely defending Hungarian traditional values. But he stands accused in the report of attacks on press freedom, the independence of judges and courts, academic freedom, minority rights, and the rights of asylum seekers. None of this is new, but the report dropped at a highly charged moment.
On September 15, the European Parliament voted by an overwhelmingly majority to approve that report, which not only criticized Hungary for undermining democracy and the rule of law but also the European Commission for failing to force Hungary to change course. Orbán dismissed the report and the vote as a “bad joke.”
For years, the E.U. has had few good options to force Orbán and his Fidesz party to respect the rules, because so many of its potential punishment measures against offending member-state governments require unanimous support from other EU members, allowing Orbán to rely on support from fellow populists in Poland who can use vetoes to provide him with cover. But Brussels can hold back badly needed cash from the EU budget if it can prove there is credible risk the funds will be stolen by corrupt officials within the country in question.
On September 18, the E.U. fired this shot for the first time in its history.
The European Commission formally recommended that EUR 7.5 billion in funding for Hungary be held back until its government addresses a long list of specific issues. This isn’t the only money at risk. Unsuccessful E.U. bargaining with Hungary over terms of disbursement of EUR 14.9 billion in grants and loans as part of a COVID Recovery Fund leave Budapest short of money equaling about 8.5% of the country’s GDP. That’s a big hit for a small country.
Other member states will vote in November on whether to withhold these funds, and the outcome won’t require unanimity but simply a “qualified majority,” a much lower threshold that leaves Orbán without protection. If the vote is yes, as is widely expected, Budapest will have one month to respond with changes meant to meet E.U. demands.
Orbán is holding a weak hand. His government is already contending with high prices, a wobbly currency, and an energy crisis. Headline inflation rose to 15.6% in August, its highest point in 24 years. Prices for staple foods like milk, bread, and poultry have surged between 40% and 65% over the past year. After an election-year spending spree to support Orbán’s most recent victory, Hungary’s budget deficit is already far worse than his government forecast. Despite that, the government has buckled to public pressure by taking on an even heavier burden. In particular, it will extend price caps on some foods and fuels until the end of the year.
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Adding to the pressure on Hungary’s economy, fears raised by E.U. action have weighed heavily on the forint, Hungary’s currency. It’s down 16% against the EUR over the past 12 months and 37% against the US dollar. Hungary’s current account deficit more than doubled from July to August of this year.
In short, the writing on the wall is so clear that even Viktor Orbán can read it. He and his party are still plenty popular at home. He can get by a while longer by blaming the E.U. and the war in Ukraine for Hungary’s economic problems.
But a rough winter looms, as Hungary, one of the countries most deeply dependent on energy supplies from Russia, scrambles for help. Failure to get prices under control could well start to cut into his support. Hungary needs that money, and it will have to jump through dozens of hoops to get it. Orbán’s government has already moved to begin meeting E.U. demands. On September 19, it sent parliament an anti-corruption bill. More such moves are in the works or will be soon.
More broadly, this is the opening salvo in a bid by E.U. officials to become much tougher with the governments of member states that flout Union rules on core values like rule of law. Brussels doesn’t want this fight to escalate, but it knows that other members are watching to see if these newly tough measures have teeth. Orbán will try to do as little as possible to unlock the funds his government needs. The E.U. doesn’t want a crisis that inflicts pain on Hungary’s people, but its leaders know they need to send a message that will be received across Europe.
The two sides will probably reach a deal, though it will surely take time. There will be many devils in many details that must be managed. The E.U. escalation is just the opening salvo of a much longer bureaucratic battle ahead.
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