The Commission has today presented an assessment under the conditionality procedure to Hungary.
The Commission finds that, notwithstanding steps taken, there is still a continued risk to the EU budget given that the remedial measures that still need to be fulfilled are of a structural and horizontal nature.
While a number of reforms have been undertaken or are underway, Hungary failed to adequately implement central aspects of the necessary 17 remedial measures agreed under the general conditionality mechanism by the deadline of 19 November, as it had committed to. These relate, in particular, to the effectiveness of the newly established Integrity Authority and the procedure for the judicial review of prosecutorial decisions.
The Commission has concluded that the conditions for the application of the regulation remain and that further essential steps will be needed to eliminate remaining risks for the EU budget in Hungary. As a result, the Commission has decided to maintain its initial proposal of 18 September to suspend 65% of the commitments for three operational programmes under cohesion policy, amounting to €7.5 billion. The Commission equally maintains its proposal that no legal commitments may be entered into with any public interest trust.
The Council will now have until 19 December to vote on the matter, requiring a qualified majority for the suspension of funds to enter into force.
The Commission, after ensuring essential milestones on judicial independence and protecting the EU budget were included, has also decided today to endorse Hungary’s Recovery and Resilience Plan (RRP), conditioned on the full and effective implementation of the required milestones. In fact, in the recovery and resilience plan, and with a view to resolve the breaches putting the EU budget at risk, Hungary has committed to the 17 remedial measures, together with other rule of law reforms related to judicial independence, as a clearly defined set of 27 ”super milestones”. This means thatno payment under the RRF is possible until Hungary has fully and correctly implemented these 27 “super milestones”.
Milestones on judicial independence and to protect the EU budget embedded in the Recovery and Resilience Plan
The Commission assessed Hungary’s plan based on the criteria set out in the Recovery and Resilience Facility (RRF) Regulation. Hungary’s plan includes an extensive set of mutually reinforcing reforms and investments that contribute to effectively addressing all or a significant subset of the challenges outlined in country-specific recommendations addressed to Hungary under the European Semester. The plan represents a comprehensive and adequately balanced response to Hungary’s economic and social situation, thereby contributing appropriately to all six pillars of the RRF.
The Commission’s assessment also found that Hungarian plan devotes 48.1% of its total allocation to measures that support the climate objective. The implementation of Hungary’s plan is expected to contribute significantly to the REPowerEU objectives to rapidly reduce dependence on Russian fossil fuels and fast-forward the decarbonisation of Hungary’s economy, with a wide range of reforms in the field of sustainable transport, energy, water management and the circular economy. For example, the plan includes a comprehensive package of measures on energy, with transformative reforms and investments promoting renewable energy.
The Commission finds that Hungary’s plan devotes 29.8% of the total allocation to support the digital transition. This includes measures to digitalise and improve education and public administration. The digitalisation of transport, energy and healthcare is expected to foster long-term economic development. The Commission concluded that the plan fulfils all relevant criteria and that none of the measures therein included is expected to significantly harm the environment, in line with the requirements laid out in the RRF Regulation.
The plan also includes a comprehensive set ofkey institutional reforms to strengthen the rule of law. These reforms effectively address the country-specific recommendations addressed to Hungary in relation to the rule of law and also serve to protect the financial interests of the Union. They are also expected to improve the efficiency and resilience of the economy by reinforcing the fight against corruption, promoting competitive public procurements and strengthening the independence of the judiciary. These reforms have been translated into a total of 27 “super milestones”, which must be fully and correctly implemented before any payment under the RRF can be made to Hungary.
They include, in particular:
- Effective implementationof all 17remedial measures under the General Conditionality Mechanism:
- Measures tocombat corruption: these include setting up new, independent bodies and authorities – an Integrity Authority and an Anti-Corruption Task Force – equipped with the tools and capacity to act when public authorities fail to do so; introducing the possibility for anyone to challenge in court the decisions of investigators or prosecutors not to investigate or prosecute; significantly increasing the amount of information required from public officials when making asset declarations; and increasing transparency.
- Measures to improve competition and transparency inpublic procurement.
- strengthened rules onconflicts of interest;
- increasedaudit and control requirements;
- the use of the Commission’s Arachnerisk-scoring tool, an IT tool that supports Member States in their anti-fraud activities, by enabling them to collect data on final recipients of funds, contractors, subcontractors and beneficial owners; and
- ensuring that theEuropean Anti-Fraud Office(OLAF) can effectively conduct investigations in Hungary.
- Measures to strengthenjudicial independence, by:
- increasing the powers of the independentNational Judicial Council, to limit undue influence and discretionary decisions, and ensure a more objective and transparent administration of courts;
- reforming the functioning of theSupreme Courtto limit risks of political influence;
- removing the role of theConstitutional Courtin reviewing final decisions by judges on request of public authorities; and
- removing the possibility for the Supreme Court to review questions that judges intendto refer to the European Court of Justice.
- Standard audit and control measures, similar to what is also required for some other Member States’ RRPs:
- fully functioning national system for monitoring the implementation of the plan;
- strategy setting out how the Hungarian audit authority will audit RRF funds, in line with international audit standards.
The Commission also considers that theaudit and control measuresenvisaged by Hungary, which cover all the measures set out above, are adequate to protect the financial interests of the Union, if fully implemented before any RRF funds are disbursed.
Next steps
For the Conditionality Regulation, the Commission will now transmit to the Council its analysis of the implementation of the 17 remedial measures by Hungary. Subsequently, the Council will have until 19 December to take a decision on the Commission proposal. The Commission will also keep the European Parliament informed.
For the RRF, the Commission has adopted today a proposal for a Council Implementing Decision to endorse the positive assessment of Hungary’s recovery and resilience plan. The Council will now have, as a rule, four weeks to adopt its implementing decision. The RRF Regulation foresees that 70% of the RRF grants allocated to Member States must be committed before 31 December 2022. This also concerns Hungary’s grant allocation.
The Commission will authorise disbursements of €5.8 billion in grants based on the satisfactory fulfilment of all the milestones and targets outlined in the recovery and resilience plan, reflecting progress on the implementation of the investments and reforms.
A total of 27 milestones necessary to ensure the effective protection of the Union’s financial interests must be fulfilled before any payment can be made to Hungary under the RRF. A later reversal of these milestones would block any subsequent payments under the RRF.
On all of the above matters, the Commission will stay in close and constructive contact with the Hungarian authorities to continue to work on the swift and substantial resolution of the concerns identified under both procedures.
Background
As of 2021, the Union budget has an additional layer of protection in cases when breaches of the rule of law principles affect or risk affecting the EU financial interests. Thisnew conditionality regulationallows the EU to take measures – for examplesuspension of payments or financial corrections– to protect the budget.
The RRF is the €723.8 billion key instrument at the heart of NextGenerationEU, which will provide up to €800 billion (in current prices) to support investments and reforms across the EU. The Hungarian plan forms part of an unprecedented and coordinated EU response to the COVID-19 crisis, to address common European challenges by embracing the green and digital transitions, to strengthen economic and social resilience and the cohesion of the Single Market. With the future addition of REPowerEU chapters into national recovery and resilience plans, the RRF will play a central role in responding to Russia’s manipulation of energy markets following its war of aggression against Ukraine.
For More Information
Questions and Answers: European Commission endorses Hungary’s recovery and resilience plan
Questions and Answers on the rule of law conditionality procedure in the case of Hungary
Recovery and Resilience Facility: Questions and Answers
Factsheet on Hungary’s recovery and resilience plan
Communication on the remidial measures notified by Hungary under the conditationality mechanism
Staff-working document accompanying the proposal for a Council Implementing Decision
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We are today giving our positive assessment to Hungary’s comprehensive recovery and resilience plan. Regarding the rule of law, Hungary has committed to significant reforms. Only once these reforms are implemented in full will access to the EU’s recovery fund be unlocked. The Hungarian plan will drive forward the green and digital transitions and strengthen its economic, social and institutional resilience. Improving the functioning of courts and judiciary will also benefit its business environment. Almost half of the planned investments will go to climate objectives, such as promoting much-needed renewable energy and sustainable transport. Hungary also aims to progress with digitalising education and healthcare, public administration, transport and energy. It has taken a long time to get to this point: now, when put into effect, this wide-ranging plan should create jobs and growth and make Hungary’s economy more inclusive and resilient for years to come.
The rule of law, including independent justice and effective anti-corruption systems, are key elements of a democratic EU. This is why the Commission is upholding these values with commitment and determination. We recommend to the Council to continue the budget conditionality mechanism as the commitments, which the Hungarian government proposed and agreed to, have not been met. At the same time we are proposing to the Council to endorse the Hungarian Recovery Plan because it includes strong judicial milestones. EU funds will only flow to Hungary only once these milestones are fully met. We will continue to effectively assess the implementation of these commitments, including effective changes on the ground.
After many long months of discussions with Hungary, we are today proposing that the Council give its approval to the country’s Recovery and Resilience Plan. This is the last of the 27 national plans to reach this stage. The plan contains an array of important reforms and investments to green and digitalise the Hungarian economy and improve the lives of ordinary Hungarians. Its implementation will help Hungary to navigate the challenging economic period that lies ahead. But let there be no doubt: there can be no disbursements to Hungary unless and until all 27 milestones covering judicial independence and protecting the EU budget are respected. It is thus first and foremost in Hungary’s interest to ensure that this is the case
The Commission has thoroughly analysed the reforms undertaken by Hungary under the conditionality process by the set deadline of 18 November. Undoubtedly, Hungary has moved into the right direction and we can clearly confirm that the conditionality mechanism is an effective catalyst for protecting the budget. However, as a whole, there is a continued risk to the EU budget because of remaining gaps in central places of the reforms. That is why, the Commission has to maintain its proposal of 18 September to protect the Union budget.
Remarks by EU Executive VP Dombrovskis, and EU Commissioner Hahn at the press conference on Hungary’s recovery and resilience plan and on the application of the Rule of Law conditionality regulation
Brussels, 30 November 2022
Executive Vice-President Dombrovskis
Good afternoon, everyone. Today, we have taken important decisions in relation to Hungary.
First, on Hungary’s Recovery and Resilience Plan, and second on the remedial measures notified by Hungary under the conditionality mechanism.
Johannes will explain this in more detail.
Regarding the Hungarian plan:
The Commission has worked intensively with the Hungarian authorities over many months, and now we have a solid programme of reforms and investments that meets all the requirements of the RRF Regulation.
When carried out, it should bring about positive change in Hungary, create jobs and growth and make the Hungarian economy more inclusive and resilient for years to come.
It will strengthen Hungary’s economic, social and institutional resilience and put it onto a greener and more digital path.
The planned reforms and investments address almost all country-specific recommendations addressed to Hungary since 2019. They place a strong focus on driving forward the green and digital transitions.
Hungary has allocated almost half of its planned spending to support climate objectives. This far exceeds the 37% target.
It has committed to reforms and investments to promote renewable energy – onshore wind power, for example – as well as sustainable transport, energy and water management.
All these measures should make a significant contribution to the EU’s broader REPowerEU objectives to reduce dependence on Russian fossil fuels and accelerate decarbonisation of our economies.
On the digital transition, Hungary is devoting almost 30% of the spending in the plan, once again substantially exceeding the 20% digital target.
Hungary envisages improvements in digitalising its education system, including providing digital notebooks to students and teachers in schools.
It also plans further digitalisation in its public administration and the healthcare, transport and energy sectors.
On the rule of law:
Hungary has committed to limit undue influence and arbitrary decisions in the administration of its courts. Its plan sets out a series of measures and reforms to address this sensitive issue.
They include strengthening the role and powers of its National Judicial Council and the judicial independence of the Supreme Court. In addition, the plan aims to progress further in fighting corruption and promoting competitive public procurement.
This brings me to milestones and ‘essential milestones’ – or as we call them, ‘super-milestones’.
We have identified 27 ‘essential milestones’ which cover:
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- all the first key implementation steps of relevant remedial measures under the conditionality mechanism
- all the milestones related to judicial independence – Didier will explain these in more detail
- and all those related to audit and control (such as the establishment of a functioning IT repository to collect data).
The ‘essential milestones must all be met in full before Hungary can submit its payment request.
If they are not met, the entire payment would be blocked, and all subsequent ones too. In short: no funds will flow until the ‘essential milestones’ are properly implemented.
Today’s endorsement and conditions provide clarity for exactly what Hungary needs to do to access the RRF funding.
The next step is for the Council to approve the Hungarian plan.
It will then be up to Hungary to make good on its commitments.
Thank you, and with this I now pass the floor to Didier.
Commissioner Johannes Hahn
Thank you.
I will now address our assessment of the progress Hungary has made on the delivery of remedial actions against the budgetary risks we had first notified in April, better known as rule of law conditionality mechanism. There were also exceptional but rather correct leaks during the week, so a lot of issues are quite well-known.
So I can focus on main issues and I would like to recall the broad risk areas we had flagged:
- Public procurement processes
- Anti-corruption framework: Conflict of interest / transparency rules
- The possibility to follow up prosecutions which had been dismissed.
What is the context for today: we again stated on 18 September (you might remember this famous Sunday) that the 17 remedial measures Hungary had proposed to us would, in principle, be capable of addressing the risks to the budget we have identified in this case, if effectively and correctly implemented.
I would like to recall also the budgetary protection mechanism we had proposed is now for the Council to take the necessary decision:
- The suspension of 65% of the 3 most procurement intensive cohesion programmes which would amount to around €7.5 billion.
- Not to sign any contracts with the public interest trusts as long as it is not fully clear that they apply EU public procurement rules and solid conflict of interest provisions in place.
- Now about the deadline. Hungary had committed to deliver a clearly defined set of key implementing steps by the cut-off date of 19 November and this is what we are assessing today.
Having set the context, we now come to the substance of the matter. We assessed today if Hungary has done enough to enable the Commission to adapt or even retract our proposal for budgetary protection measures which we made to the Council on 18 September.
Short answer: No. Hungary has unfortunately not implemented the remedial measures so that we could say that the risks we identified have gone away.
We conclude therefore that we maintain – as it stands – our proposal on the budgetary protection measures.
Important to start by saying, concerning our assessment, that Hungary has moved into the right direction, by addressing the numerical majority of the measures in this short time frame.
We can really already conclude that the conditionality regulation was and is the right tool to apply: we obtained reform commitments which would never have happened otherwise. You could already hear from my fellow colleagues what has been achieved in the area of independence of the judiciary and so on.
What we conclude today is that important weaknesses and risks remain with some of the most central cross-cutting measures:
- the newly established integrity authority,
- the possibility to review cases which have been dropped by a prosecutor,
- the rules on asset declarations or conflict of interest
These are all issues which have a horizontal effect. If they do not work, this weakens the entire budgetary protection.
Concrete examples of the risks and weaknesses:
- the powers and competences of the new Integrity Authority,
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- the transfer, for instance, of competence for the verification of certain asset declarations,
- the competences in cases of the withdrawal of projects from the Union financing;
- the effectiveness of the new procedure for the judicial review of prosecutors’ decisions and its application to criminal offences committed before 1 January 2023;
- the asset declaration system, including the lack of clarity on the personal, material and temporal scope of the assets declarations;
So you see, to certain extent, there is a devil in the detail but it is crucial to address this issue in a correct and sober manner and make these instruments becoming strong instrument and not useless. And this is why we need further work on these issues.
This means what is the way forward:
If the Council adopts the budgetary protection measures – for this we need qualified majority – we will monitor with a view of course of lifting these measures as soon as possible. But only when the problems have been solved.
Second, we will in any case continue to engage with Hungary and try of course to encourage and support to solve these issues as soon as possible. I would like to stress finally that we are guided in our assessment by the regulation and – in a broader context – the intention to achieve improvements for the Hungarian citizens. This is what has guided us and will simply guide us in the future. All our assessment is based on facts, on figures and not on emotions, on assumptions, whatsoever. But clearly what is on the table, what has been adopted.
Thank you.
Source – EU Commission