What to make of Hungary’s budget veto?

Justifying the veto, from the rule of law to migration

Budapest first argued that the German rule of law mechanism proposal to be adopted by a qualified majority of the Council of the EU has not set forth any objective criteria, labelling it a “political blackmailing” tool. A joint statement by the Polish and Hungarian governments claimed that they had only authorized the establishment of a system strictly protecting the EU budget, not the introduction of political criteria. They vowed not to accept the budget as long as either country has reservations about the rule of law mechanism. However, the Polish administration seems to have blinked first: Deputy PM Jaroslaw Gowin said the country might drop its veto in exchange for a “binding” declaration on how Brussels would use the conditionality mechanism. This came after leaks alleging the Commission was looking for ways to launch the economic recovery funds with only the 25 states who agreed to the EU budget. Hungarian PM Viktor Orbán said he does not support Poland’s proposed solution and Hungary wants the rule of law conditionality mechanism to be separated from the EU budget. In fact, the proposals on the EU budget and the rule of law mechanism are two separate legislative proposals that have been linked politically by the Member States. In any case, the Polish-Hungarian alliance of defiance has already been shaken, if not broken: Polish government officials insisted after Gowin’s statement that they are upholding their “tough negotiating position,” but the episode is still an indication that Warsaw might be convinced to lift its opposition more easily.    

Orbán stated just days after his veto that Brussels only considers Member States to be adhering to the principles of the rule of law if they allow migrants to settle in their lands, establishing the baseline for the Hungarian ruling party’s domestic communications: “Migration is the key to everything”. Brussels, according to Fidesz, is trying to use the rule of law mechanism to execute the so-called “Soros-plan” to force Budapest to allow migrants to live in Hungary. Why bring migration and Soros into the picture? Because, as a recent survey found, the vast majority of Hungarians are in favor of linking EU subsidies to democratic principles. Thus, the cabinet had to revert to its well-known messaging to at least convince its own electoral base, via Government-controlled media outlets, that the administration’s decision is just part of Hungary’s struggle against Brussels to defend its sovereignty. According to a recent Medián poll concerning the veto, the strategy is starting to pay off: Every second Hungarian says the EU is “punishing” Hungary for restricting migration, and 17% of opposition voters – including 38% of MSZP and 30% of Jobbik backers – also share this sentiment. Not a single word in the rule of law conditionality texts actually mentions migration.

One potential factor that could stop Hungary from quickly dropping its veto is that the ruling party needs a victory. Although it still has a considerable lead over the opposition, Fidesz’s popularity has been slowly eroding since August 2020. According to Závecz Research, if voters could pick just from a Fidesz party list and a list with all six major opposition parties in a theoretical election, the latter would have a slight edge. The economic effects of the coronavirus and the chaotic pandemic management measures of recent months have certainly affected support for the ruling parties. Thus, the cabinet hopes a struggle with Brussels over EU funds will shift attention away from the coronavirus and convince some non-committed Fidesz-leaning voters to back the party in 2022.

Clientelism and power politics are also in play

Another key issue with the rule of law mechanism for the Hungarian ruling party is that it could seriously interfere with its efforts to build its clientelism by using EU funds. Hungarian entrepreneurs with ties to key Government figures, including the PM himself, are profiting considerably from EU-funded contracts. These profits have been used, among other matters, for acquiring a wide range of media outlets that were then turned into Government mouthpieces and gathered under the umbrella of the Central European Press and Media Foundation (KESMA). The EU anti-fraud agency’s recommended financial corrections to previously disbursed funds affect 3.93% of the EU cohesion and agricultural funds allocated to Hungary between 2015 and 2019. The proportion of previously disbursed funds affected in Poland was 0.12% in the same time period, and thus the mechanism poses less of a threat to Warsaw.

Moreover, the rule of law mechanism would interfere with Fidesz’s efforts to gain complete control over society. The Hungarian cabinet has curbed the independence of the judiciary, and a recent constitutional amendment seeks to limit the definition of what constitutes public funds. These topics are covered by the rule of law text agreed upon so far because, for instance, the independence of courts in the Member States is an essential element of protecting the EU budget.

What does Budapest want to achieve?

In the domain of party politics, the Hungarian ruling parties could probably achieve a “victory” by forcing their partners to agree to textual changes such as an explicit reference to migration policy not constituting a basis for sanctions against any Member State, thereby allowing Fidesz to depict their fight against Brussels as a successful one. Such an outcome would feed into the Orbán cabinet’s narrative about the Hungarian premier being a key actor on the European scene who cannot be circumnavigated and who has thus managed to stop Brussels’ “Soros-led” attack to settle migrants in the country.

Hungary’s main aim, driven by considerations of political power, is making the rule of law mechanism weak enough to render it essentially impossible to implement sanctions against Member States in practice, or at least delay any possibility of sanctions until after the next general elections. This would allow the incumbent cabinet to finish their efforts to transform the local political system before they have to worry about any sort of sanctions, at least in the short term. Even if the conditionality law were approved with such an interpretation declaration, Hungary, either alone or with Poland, could possibly turn to the EU Court of Justice for legal review of the mechanism, seeking to delay its implementation.  

The Hungarian Government is hoping that the leaders of European states that have suffered even more during the pandemic, such as those of Italy and Spain, as well as the general economic situation, will pressure Berlin into making concessions to Budapest. While the German presidency does seem to be ready to do just that, any plans aiming to reduce the practical effectiveness of the rule of law mechanism will meet with stiff resistance from the “Frugal Four” countries (Austria, Denmark, the Netherlands and Sweden) and the European Parliament.

It also must not be forgotten that the Hungarian administration is in dire need of additional EU funds. The European Commission forecasts a 6.4% GDP fall for Hungary. For Fidesz, stable economic growth and improving employment data formed a key pillar of their popularity, in addition to their anti-migration and anti-Soros rhetoric. EU funds have been important in ensuring that the Hungarian economy grows at a steady rate. The coronavirus and the subsequent economic crisis threaten these results, so it is in the Orbán cabinet’s interest to channel as much funding as possible into the economy during the last full year before the 2022 general election.

There will be a point where Fidesz will feel pressure internally to unblock funds and help reinvigorate the economy: long-term economic troubles rarely help an incumbent Government’s election prospects. The real question is whether the pressure exerted by southern Member States manages to convince the Frugal Four and the EP to reach a compromise first. Budapest is still betting that it will.