The European Commission has today proposed budget protection measures to the Council under the conditionality regulation. This is to ensure the protection of the EU budget and the financial interests of the EU against breaches of the principles of the rule of law in Hungary.
Regarding today’s decision, Commissioner Johannes Hahn in charge of Budget and Administration said:
“Today’s decision is a clear demonstration of the Commission’s resolve to protect the EU budget, and to use all tools at our disposal to ensure this important objective.”
This step builds on an intensive dialogue between the Commission and the Hungarian authorities in the past months, which has resulted in Hungary proposing a range of remedial measures to address the concerns identified by the Commission when the process was formally launched on 27 April this year.
It follows the letter that the Commission sent to Hungary, outlining the measures it intended to propose to the Council, and the remedial measures submitted by Hungary in the letter of 22 August, complemented by additional clarifications in a letter on 13 September.
The Commission has thoroughly assessed the Hungarian reply, looking in particular into whether the remedial measures adequately address the Commission’s initial findings. For the measures to qualify as adequate, they would need to put an end to the breaches of the principles of rule of law and/or to the risks they create for the EU budget and the Union’s financial interests.
The Commission’s conclusion is that the proposed remedial measures could in principle address the issues at hand, if they are correctly detailed in relevant laws and rules, and implemented accordingly.
Pending the fulfilment of the key implementation steps, the Commission considers that a risk for the budget remains at this stage. This explains today’s decision and the proposed measures, which also take into account the remedial action that Hungary has presented.
At this stage, the Commission proposes the following measures:
- A suspension of 65% of the commitments for three operational programmes under cohesion policy
- A prohibition to enter into legal commitments with the public interest trusts for programmes implemented in direct and indirect management
The Council has now one month to decide whether to adopt such measures, by qualified majority. This period could be extended by a maximum of further two months in exceptional circumstances.
In the meantime, the Commission will monitor the situation and keep the Council informed of any relevant element which may have an effect on its present assessment. Hungary has committed to fully inform the Commission about the fulfilment of the key implementation steps by 19 November.
The Regulation on a general regime of conditionality for the protection of the Union budget ensures protection of the EU budget in cases when breaches of the rule of law principles affect or seriously risk affecting its sound financial management or the protection of the EU financial interests in a sufficiently direct way. It applies since January 2021. Ever since, the Commission has been monitoring the situation across the EU countries and collecting relevant information.
On 2 March 2022, European Commission adopted its guidelines on the general regime of conditionality. The guidelines explain in detail how the Commission will apply the regulation, including how the rights of the final recipients and beneficiaries of EU funding will be protected.
The procedure in the case of Hungary is the first one under the regulation. The Commission continues to monitor information from all relevant sources, to identify possible relevant breaches of the principles of the rule of law.
For More Information
Remarks by Commissioner Hahn at the College Read-out on the protection of the EU budget in Hungary
We had an excellent discussion today and I can report that the College took an unanimous decision about the next step in the procedure concerning Hungary under the Conditionality Regulation.
As you know, we have a whole tool-box of instruments with different methodologies, protecting the Rule of Law. This is the first case under the Conditionality Mechanism which entered into force on 1 January 2021 and aims at protecting the financial interests of the Union, i.e. it is about breaches of the Rule of Law compromising the use and management of EU funds.
As President von der Leyen confirmed in this week’s State of the Union address, the Commission will also protect our budget through the conditionality mechanism.
In exactly this spirit, the Commission is proposing measures to the Council for the protection of the Union budget against breaches of the principles of the rule of law in Hungary.
This case started when the Commission notified Hungary in April earlier this year about our concerns relating to breaches of the principles of the rule of law that create a risk, and it is important because it is about the scope, for the EU budget. These concern:
- systematic irregularities and deficiencies and weaknesses in public procurement;
- insufficiencies in addressing conflict of interest and concerns regarding public interest trusts;
- weaknesses in the effective pursuit of investigations and prosecutions in cases involving Union funds;
- and shortcomings in the anti-corruption framework.
In July, the Commission informed Hungary of what budgetary protection measures we would propose to the Council unless Hungary developed adequate remedial measures to fix the issues we had flagged up.
Over the summer, Hungary committed to 17 remedial measures to address the risks to the EU budget. These are detailed and assessed in the Communication we just adopted.
With these measures Hungary has made important and public commitments in the right direction. And I would like to explicitly welcome this constructive engagement (even if at a late stage), but what counts is indeed the results. Examples:
- a new and independent Integrity Authority with extensive powers,
- an Anti-Corruption Task Force with strong involvement of specialised NGOs,
- the modification of the criminal code to allow judicial review of prosecutorial decisions,
- the systematic use of the Commission’s datamining and risk scoring tool Arachne (this makes public who gets which EU funding), it is an issue which we are pushing for years also with our Member States and it will be subject to the modification of our financial regulation,
- changes to the public procurement act to clarify rules applying to Public Interest Trusts.Reform of the asset declaration system for high profile public officials (ministers, state secretaries, MPs).
To consider these remedial measures to be ‘adequate’, the Commission needs to be able to conclude that they will put an end to the identified risks for the EU budget and EU financial interest.
Our conclusion is that the proposed remedial measures could in principle be capable of addressing the issues described in the notification, if they are correctly specified in relevant laws and rules, and implemented accordingly.
However, important details of the proposed measures are still to be determined and assessed, in particular how their key elements will be reflected in the actual legal texts. This is natural, as the timelines and deadlines under this regulation are – rightly – very tight. Additionally, several of the issues the Commission has identified require not only changes in the legal framework, but concrete changes in practice, which requires more time to deliver concrete results.
Therefore, the Commission’s assessment is that a risk for the budget at this stage remains. Therefore, we cannot conclude that the EU budget is sufficiently protected. The Commission has therefore proposed measures to the Council, pending the fulfilment of key implementation steps.
The Commission proposes a suspension of 65% of the commitments for three operational programmes under cohesion policy, amounting to an estimated €7.5 billion – which is over a third of Hungary’s Cohesion envelope, and the prohibition to enter into legal commitments with the so-called public interest trusts. The measures take into account the remedial measures Hungary submitted.
The Commission will now monitor the situation. Hungary has committed to fully inform the Commission about the implementation of the remedial measures by 19 November, as also outlined in the timeline published in our proposal.
Our ultimate objective under this mechanism is that budget is no longer at risk and we hope to achieve this as soon as possible through the adequate reforms in Hungary.
Today, we show the power of this new protective tool to fix problems: we have seen significant movement at the level of reform commitments. At the same time, our proposal to the Council is equally an expression that we will suspend funds to protect the budget if the promised fixes are not applied.
Source – EU Commission