The European Commission alleges Hungary’s failure to address corruption and implement necessary reforms, a claim Budapest refutes.
The EU has permanently revoked over €1 billion in funding from Hungary, effective January 1, 2025, due to an ongoing disagreement over alleged rule-of-law breaches, according to a Welt report citing a European Commission spokesperson. This marks the first instance of a permanent funding loss for an EU member state under the bloc’s “conditionality” mechanism.
Implemented in 2020, this mechanism allows the EU to suspend funds to members deemed to violate its rule-of-law principles.
The EU has long pressed Hungary for legal changes to combat purported conflicts of interest and corruption, initiating “conditionality” proceedings in 2022 and subsequently freezing its EU funding.
Brussels cited alleged violations of public procurement regulations and a lack of oversight and transparency as justification. While Hungary has enacted reforms and unblocked some funds, approximately €19 billion remains frozen.
The European Commission’s July 2024 Rule of Law report reiterated Hungary’s failure to meet EU democratic standards, citing ongoing shortcomings in areas such as corruption, political financing, conflicts of interest, and media independence. Budapest was informed that failure to complete reforms by year’s end would result in the expiration of the first tranche of discontinued commitments, totaling €1.04 billion, allocated to developing economically disadvantaged regions.
Reports indicate a further €1.1 billion tranche earmarked for Hungary is set to expire at the end of 2025.
Hungarian Prime Minister Viktor Orban maintains his country has satisfied all EU requirements and intends to fight for the return of funds he considers rightfully theirs. He threatened in mid-December to veto the EU’s next seven-year budget unless the blocked funds are restored. Approval of the 2028-2035 budget necessitates unanimous agreement among the 27 member states. Budget negotiations are anticipated to commence in mid-2025.
To address the funding shortfall resulting from the dispute with Brussels, Hungary has secured alternative financing, including loans from China. In April, Budapest obtained a three-year, $1 billion loan from the China Development Bank, Export-Import Bank of China, and the Bank of China’s Hungarian branch to support infrastructure, transport, and energy projects. The Hungarian Debt Management Agency indicated in July that further such loans are possible as economic ties with China strengthen.