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Hungary at risk of losing billions in EU funds over rule-of-law dispute

The EU’s fight with Hungarian Prime Minister Viktor Orban over democratic backsliding is set to get nastier after the European Commission proposed freezing $13.7 billion until Hungary takes more action to tackle corruption and ensure the independence of the judiciary.

(CN) — The European Union's executive branch on Wednesday set the stage for a bitter showdown with far-right Hungarian Prime Minister Viktor Orban by proposing to withhold $13.7 billion in EU funds as punishment for Hungary's alleged violations of democratic principles.

The European Commission's proposal to freeze funds to Hungary will need the approval of a majority of the EU's 27 member states, which make up the European Council. A decision by the EU's national governments is likely to come by mid-December.

The commission's proposition is expected to be approved because this measure – unlike many actions taken by the European Council – will not require unanimity among its members but rather only the support from a so-called “qualified majority” of EU states. The unanimity threshold built into most of the bloc's founding treaties has become a major obstacle for the bloc in foreign affairs and pushing forward reforms inside the EU.

The freezing of EU funds is a novel tool Brussels hopes to use in its long-running dispute with Hungary and other countries, most notably Poland, accused of democratic backsliding and disregarding EU court decisions, rules and laws.

This fight has been defined as a struggle over the rule of law and it has become a central theme in European politics, especially with the revival of nationalism across the bloc as seen most recently with the victory of a far-right party, the Brothers of Italy, in Italy's recent elections.

Hungary and Poland are both run by nationalistic right-wing governments that vehemently oppose the Brussels-based EU bureaucracy and its supranational decrees. Leaders in Warsaw and Budapest are challenging the dominance of EU laws over their national laws and they have become leading voices in Europe pushing back against the drift toward a federal Europe that mirrors the United States, a direction championed by many in Brussels.

By contrast, many policymakers in Brussels, EU judges and many European leaders warn that Orban's Fidesz party and the ruling Law and Justice party in Poland must be reined in because they are seen as establishing corrupt anti-democratic one-party systems in their countries and threatening the core principles underpinning the EU.

In its decision on Wednesday, the European Commission said Hungary has not taken enough steps to tackle corruption and reform the judiciary.

The funds at stake come from two pools of EU aid: 7.5 billion euros ($7.7 billion) from the EU's 2021-2027 budget and 5.8 billion euros (about $6 billion) in coronavirus pandemic recovery funds. As one of the EU's newer underdeveloped post-communist member states, Hungary has benefited greatly from large sums of development aid from the EU budget since joining the bloc in 2004.

The commission has laid out a series of measures it wants Hungary to take to root out corruption and fraudulent use of EU funds, ensure public contracts are awarded fairly and openly, bolster the independence of the judiciary and improve auditing of EU funds.

Several political groups in the European Parliament hailed the commission's hard stance against Hungary as a major step in confronting Orban.

Iratxe Garcia, the head of the center-left Socialists and Democrats group, said in a statement that “a functioning rule of law is a precondition to receive any EU funds. The rule of law is not negotiable.”

Orban's government did not immediately comment on the possibility of losing the funds. But in recent weeks, Hungary has threatened to vote against EU moves to send $18.5 billion in aid to Ukraine and support an international agreement on minimum corporate tax rates.

On Monday, Orban's spokesman, Zoltan Kovacs, accused Brussels of “blackmail” and “double standards” in an interview with the Hungarian Nation, a pro-government news outlet.

He said left-wing forces had taken control of the EU and were “using their monopoly to exert political pressure, to blackmail, to continually apply double standards, and to make relentless attempts to slaughter governments and political forces which don’t think in the way that Brussels tells them to think.”

Courthouse News reporter Cain Burdeau is based in the European Union.

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