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Hungary is set to permanently lose access to just over €1 billion in EU funds on January 1, as disputes between Budapest and Brussels hamper the country's ability to pull itself out of recession – and undermine Prime Minister Viktor Orbán's bid to… Up for re-election in 2026.
EU funds have been frozen Hungary At a time when her government has little room to manoeuvre. Its budget deficit this year is more than 4.5 percent of GDP, adding to political tensions.
The Hungarian economy contracted by 0.7 percent in the third quarter – the second contraction in a row – plunging the economy into a technical recession amid weak demand in the automobile, electronics and pharmaceutical sectors that dominate its industrial base.
Of the 6.3 billion euros in funds that Brussels froze due to concerns about… Rule of lawBudapest will permanently lose €1.04 billion because this amount must be allocated by the end of 2024 or it will expire. Hungary is also losing €1 million a day in funding from the European Union due to its illegal treatment of asylum seekers; Its total losses related to the treatment of asylum seekers are expected to reach €200 million by the end of the year.
Both come in addition to a one-time €200 million fine imposed by the European Court of Justice in June for violating asylum rules and ignoring a previous ruling.
In total, €19 billion of post-pandemic recovery funds and other EU resources remain blocked.
János Buka, Hungary's EU affairs minister, said in mid-December that it was “very difficult” not to interpret the withdrawal of funds as “political pressure,” adding that Budapest would take measures “to address this discriminatory situation.”
The government is also seeking damages for a ruling by the European Court of Justice in June that led to millions of euros in fines, in another sign that relations between Brussels and Budapest have reached a new low.
The Hungarian opposition has seized the opportunity to blame Orbán's government for the economic crisis.
“I spent 14 years with unlimited power and billions of dollars,” said Peter Magyar, an Orban ally-turned-adversary whose party trailed Orban’s Fidesz in last June’s EU elections and has since topped the polls. European Union… This ship has sailed. The Hungarians will not wait.
EU funds are likely to remain withheld all the way until the election, with neither party willing to concede on what each sees as key issues, including anti-corruption measures, judicial independence, and Hungary's treatment of minorities and asylum seekers.
Brussels also questioned Budapest's belief that it can increase spending over the next four years, based on Hungary's expectations of excellent growth.
The two sides have until mid-January to agree on an intermediate fiscal plan between 2025 and 2028, with the European Union set to give the country bad marks unless the government cuts spending.
“There will be a lot of tug-of-war,” said Peter Verovac, chief economist at ING Bank in Hungary.
For the 2025 budget, billions of euros in investment and social spending mostly funded by the European Union were cancelled, prompting Hungarians to tour the country, drawing attention to dilapidated hospitals, inadequate childcare facilities and railway stations left to the elements for decades. .
Economy Minister Marton Nagy admitted that the government cannot fully fill the gap left by EU funding.
“You can't just say you want a shiny new hospital, you need money. So you need growth,” Nagy told the Financial Times. “The economy needs to be fixed first. . . We have stumbled for years from crisis to crisis, Covid, the energy crisis, war, and now the weakness of the German economy. . . “We all know tax revenues are missing, so we need to recreate them.”
Nagy insisted that the government would not overspend, saying it would limit the use of funds to boost growth to 0.5 percent of GDP.
Instead of using government money for stimulus, the Economy Minister proposed enabling people to use about 5 billion euros worth of private pension fund savings to buy or renovate property tax-free, in a move aimed at boosting weak demand.
At the same time, Orban is betting that investors from Asia could fill the gap – a policy he has called “economic neutrality.”
Chinese investments in Hungary They have risen in recent years, but few believe they can fully make up for the lack of funds from Brussels.
Before disputes between Brussels and Budapest escalated in 2022, the EU was willing to finance several major infrastructure projects in Hungary.
Among them is a railway line from central Budapest to the capital's airport.
“We could have been living in a golden age, with more than 10 billion euros spent on the sector in this decade alone,” said David Vitese, who led Budapest Transport at the time and briefly served as Orbán’s secretary of state for transport. “We've lost almost all of it.”
“EU financing is an important part of public investment in Hungary,” EU Economic Commissioner Valdis Dombrovskis told the Financial Times in an interview last December, adding that “it is important that Hungary does what it does.” necessary to ensure the availability of financing.
