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Hungary will permanently lose more than €1 billion in EU funds on January 1 as a dispute between Budapest and Brussels hampers the country’s ability to emerge from recession and weakens Prime Minister Viktor Orbán 2026 years of re-election efforts.
The freeze on EU funds is a blow to Hungary at a time when its government has little room for maneuver. This year’s budget deficit amounts to more than 4.5% of GDP, exacerbating political tensions.
Hungary’s economy shrank 0.7% in the third quarter, its second consecutive contraction, slipping into a technical recession due to weak demand from the automotive, electronics and pharmaceutical industries that dominate its manufacturing base.
Of the 6.3 billion euros frozen by Brussels over concerns about the rule of law, Budapest will permanently lose 1.04 billion euros because the funds must be distributed by the end of 2024 or they will expire. Hungary has also missed out on €1 million a day in EU funding for illegally treating asylum seekers; its total losses on the treatment of asylum seekers will reach €200 million by the end of the year.
This comes after the European Court of Justice imposed a one-time fine of €200 million in June for violating asylum rules and ignoring previous judgments.
A total of 19 billion euros in post-pandemic recovery funds and other EU resources remain frozen.
Hungary’s EU affairs minister János Bóka said in mid-December that it was “difficult” not to interpret the withdrawal of funding as “political pressure”, adding that Budapest would take action “to correct this discriminatory situation”.
The government is also seeking compensation for a European Court of Justice ruling in June that resulted in a multi-million-euro fine, another sign that relations between Brussels and Budapest have reached a new low.
Hungary’s opposition seized the opportunity to blame Orban’s government for the economic downturn.
Péter Magyar, a former Orban ally-turned-enemy whose party overtook Orban’s Fidesz in June’s EU elections ) and has been leading the polls ever since. . . The ship has sailed. Hungarians will not wait. Enough is enough!
EU funding is likely to be hampered until the election, with both sides unwilling to relent on what they see as fundamental issues, including anti-corruption measures, judicial independence and Hungary’s treatment of minorities and asylum seekers.
Brussels has also questioned Budapest’s belief that it can increase spending over the next four years based on Hungary’s expectations of strong economic growth.
The two sides have until mid-January to agree on a compromise fiscal plan between 2025 and 2028, and unless the government lowers spending, the EU will leave a bad impression on the country.
“There will be a lot of tug-of-war,” said Péter Virovácz, senior economist at ING Hungary.
Billions of euros of investment and social spending, much of it EU-funded, were scrapped in the 2025 budget, prompting Magyar to tour the country to call attention to decades of abandoned hospitals and inadequate childcare facilities. and train stations.
Economy Minister Marton Nagy admitted the government would not be able to fully fill the gap left by EU funding.
“You can’t just say you want a shiny new hospital, you need money. For that, you need growth,” Najib told the Financial Times. “First the economic problems need to be solved… We have been stumbling through crises for many years, the coronavirus, the energy crisis, the war and now the weakness of the German economy… We all know that tax revenues are missing, so we need to recreate them .
Najib insisted the government would not overspend and said he would limit the use of funds to promote economic growth to 0.5% of GDP.
The Economy Minister proposed allowing people to use their private retirement fund savings worth about 5 billion euros to buy or renovate property tax-free, rather than using government funds for stimulus, in a move aimed at boosting flagging demand.
Orban, meanwhile, is betting that investors from Asia could fill the void – a policy he calls “economic neutrality”.
Chinese investment in Hungary has surged in recent years, but few believe it can fully make up for the lack of funding in Brussels.
The EU is ready to fund several large infrastructure projects in Hungary ahead of an intensification of the dispute between Brussels and Budapest in 2022.
These include a rail connection from central Budapest to the capital’s airport.
Dávid Vitézy, then director of the Budapest Transport Authority and later briefly Orbán’s transport state secretary, said: “We could have had a golden age, investing in the industry in just these ten years. More than 10 billion euros “We have lost almost all of them. ”
EU Economic Commissioner Valdis Dombrovskis told the Financial Times in December that “EU funds are an important part of Hungary’s public investment,” adding that “Hungary It is obviously important that the necessary measures are taken to ensure the availability of funds.”
