Billions hang in balance as EU court tests Hungary’s judicial reforms

(CN) — Billions in frozen EU funds for Hungary are back in the spotlight, as lawyers and EU officials clashed Tuesday before Europe’s top court over whether Brussels moved too fast to unlock the money despite lingering concerns about judicial independence.

Hungary has long been one of the biggest recipients of EU aid, but its slide away from democratic norms has set off alarms in Brussels. Judicial independence has eroded, the media landscape has tightened under government influence, and corruption scandals around state-run foundations have deepened mistrust across the bloc.

In 2022, the EU froze more than half of Hungary’s cohesion funds under its rule-of-law mechanism, saying it needed to verify that Budapest’s promised reforms were genuine before releasing the money.

A year later, in December 2023, the European Commission decided to release about 10.2 billion euros (about $11.8 billion) that had been on hold. The move was meant to reward Hungary’s judicial reforms, but it quickly sparked backlash in the European Parliament, where lawmakers argued Brussels had acted too soon and before Hungary had shown its judges were truly independent from political pressure.

That dispute has now landed before the Court of Justice of the European Union, where both sides faced off on Tuesday over how far the bloc can go in tying its money to rule-of-law standards.

Opening the hearing, the parliament’s lawyer Richard Crowe said the commission “rushed the adoption of the contested decision,” calling its assessment “premature and incomplete.” He argued that Brussels ignored fresh signs of backsliding just as it was supposed to verify whether Hungary’s reforms were working.

Crowe reminded the judges that “serious deficiencies in judicial independence in Hungary” had already been flagged in 2022, when the commission agreed to approve Hungary’s funding programs only on the condition that Budapest first strengthen safeguards for its courts.

Those requirements — what Brussels calls “horizontal enabling conditions,” basically the rule-of-law standards a country must meet before getting EU cash — were meant to keep judges free from political pressure.

“It is not sufficient,” he told the judges, “to rely on mere commitments or promises from the member state or reforms that will only take effect at some time in the future.”

The parliament said the commission overlooked two laws Hungary passed in late 2023: the Sovereignty Protection Act, which created an office to investigate foreign influence, and a measure empowering the Constitutional Court to issue binding guidance on what counts as a matter of national sovereignty. Taken together, lawmakers warned, those changes could intimidate lower judges and make them think twice about working with EU courts.

Crowe warned that, taken together, these measures could make ordinary judges think twice before turning to EU courts. “Through this package,” he said, “Hungary gave with one hand and took with the other.”

He added that the new watchdog could have a “chilling effect” on judges who might fear being investigated simply for referring a case to Luxembourg. By unfreezing the funds without examining these changes, he said, the commission “turned a blind eye to these parallel developments.”

The commission’s legal team pushed back, saying the agency had acted “fully based on law and fact” and well within its authority. They told the judges that the so-called Charter Condition is meant simply to make sure EU money is spent in line with fundamental rights, not to “regulate the judicial organization in a member state in every detail.”

In their view, the commission’s job was only to check that fair-review systems were in place for disputes over EU funds. “The deficiencies must affect the mechanisms in place to ensure Charter compliance and therefore be systemic and of a certain seriousness,” the team said.

The commission also pushed back against the parliament’s argument that it had ignored Hungary’s new laws, saying those measures didn’t directly affect how courts function or how EU funds are handled. It also insisted it wasn’t required to take those laws into account during its review.

The two sides also sparred over how Hungary assigns court cases, a long-standing concern about political influence in the judiciary. After years of criticism over handpicked cases, Budapest introduced a new electronic system in 2023 to make allocations automatic and transparent.

The parliament said the system still allows political interference, while the commission maintained that the 2023 decree and a later audit showed the process meets EU standards.

During questioning, the judges dug into how far Brussels’ discretion really stretches. One adviser wondered aloud whether the commission has leeway both when defining the reforms and again when judging if they’ve been fulfilled.

In response, the commission’s team explained that most of its flexibility came at the approval stage, when it first set the criteria for Hungary to meet; the later review, they said, was mainly a technical check to confirm compliance.

The parliament’s lawyer took a different view, warning that the commission’s role can’t be reduced to paperwork. Instead, it should make sure the safeguards genuinely protect judicial independence and remain alert to any signs of backsliding between approval and payment.

At one point, one of the court’s advisers asked whether any threat to judicial independence should automatically affect a country’s access to EU funds. The commission replied that only problems with a clear and direct impact on how the money is managed would trigger the rules. The parliament disagreed, saying the connection is obvious since nearly all of Hungary’s courts handle cases tied to cohesion funding.

The hearing wrapped up without a ruling. The court will now deliberate and is expected to issue its judgment sometime next year, after receiving a nonbinding opinion from its adviser in the coming months.

Until then, billions in EU funds remain on hold, along with a bigger question: How far Brussels can go in making its money depends on respect for the rule of law.

Courthouse News reporter Eunseo Hong is based in the Netherlands.