Hungary Seeks to Reallocate EU Recovery Funds Amidst Spending Deadlines and Criticism
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The Hungarian government is planning to significantly alter how it spends funds from the European Union’s recovery program, a move drawing scrutiny from civil society organizations concerned about potential diversions from key environmental and infrastructure projects. A draft proposal, uploaded to palyazat.gov.hu and reviewed by Portfolio, reveals a shift in priorities as the country faces looming deadlines to access the €10.4 billion (approximately HUF 4,000 billion) in support and loans.
Pressure Mounts to Meet EU Milestones
The EU recovery fund, designed to bolster economies after the COVID-19 pandemic, comes with strict conditions – known as “milestones” – that Hungary must meet to receive disbursements. According to the draft, these conditions must be satisfied by next fall, with all claims settled by the end of 2026. The European Court of Auditors and the European Commission have already urged member states to accelerate their efforts.
Hungary currently stands alone in its inability to request regular payments, placing it under particular pressure. “Only measures that can certainly be implemented should remain in the plans,” emphasized Economic Commissioner Valdis Dombrovskis in June, urging governments to “streamline” their plans with quick-to-implement measures. The Hungarian government previously enacted a regulation allowing it to suspend payment for any application, and the European Commission suggested transferring funds to independent lenders or the InvestEU fund as potential solutions.
Billions Diverted to Hungarian Development Bank
The proposed changes center around a substantial reallocation of funds to the Hungarian Development Bank (MFB). Portfolio’s calculations indicate that approximately HUF 1,600 billion – more than a third of the total HUF 4,000 billion budget – would be channeled through the MFB. A new chapter titled “Economic Resilience” has been added to the draft, outlining goals such as a competitive workforce, affordable housing, a green economy, and broader economic development.
Furthermore, approximately €250 million (nearly HUF 100 billion) would be diverted from the recovery fund and allocated to the InvestEU fund, contingent upon signing a redeployment agreement with the European Commission by the end of 2025.
NGOs Raise Concerns Over Prioritization
A study conducted by K-Monitor, the Hungarian Helsinki Committee, Amnesty International Hungary, TASZ, and Transparency International Hungary raises serious concerns about the reallocation. The NGOs argue that the changes would divert resources from crucial areas like water treatment, sustainable transport, the circular economy, and the REPowerEU initiative – designed to reduce reliance on Russian energy.
They contend that a “disproportionately large” portion of the redirected funds would flow to the MFB, suggesting that the primary objective is not genuine reform but rather a strategic maneuver to access funds before implementation deadlines expire. The NGOs also note that the stated goals are not aligned with the European Semester process, through which the EU Council of Ministers proposes recommendations to member states.
Limited Progress and Ongoing Disputes
The Hungarian government has also utilized reallocations from its “regular” budget to unlock some frozen funds, as acknowledged by Minister of EU Affairs János Bóka in June. However, this approach is limited in scope. The recovery fund, unlike the regular budget, remains largely blocked due to 27 prerequisites. As of late 2023, Hungary had only fulfilled four of these “super milestones.”
A recent attempt by the government to satisfy these conditions, involving public interest trust foundations and affiliated universities, was rejected in 2024. While the NGOs estimate that 17 out of 27 prerequisites have been met, nine remain only partially fulfilled, and one has not been addressed at all – representing a step backward. They also express concern that the situation regarding standard milestones, representing broader reforms and developments, is “even grimmer.”
The government maintains that it has met all conditions and that funds are being withheld for political reasons, alleging an attempt to “blackmail” Hungary during negotiations for the next seven-year EU budget starting in 2028. However, the EU insists that milestones must be met by fall 2026 to avoid further delays.
With elections expected in April, the incoming government will face intense pressure to demonstrate progress on these milestones before the August parliamentary break. Transfers and reallocations may offer a temporary reprieve, but ultimately, fulfilling the EU’s requirements remains critical to accessing vital funding.
