Hungary votes to unlock €16.4bn EU funds

Hungary's parliament has moved with unusual purpose, voting 142 to 39 last week for a broad anti-corruption package designed to unlock roughly €16.4bn in frozen EU funds (Brussels Signal, kormany.hu). The laws tighten asset declarations, give more power to the Integrity Authority, Hungary's anti-corruption watchdog, and dissolve public-interest foundations linked to the Orbán government.

The question now sits with the European Commission. If legal changes on paper are enough, Budapest may get the money quickly. If Brussels insists on seeing the reforms work in practice, this becomes a much harder test of what EU conditionality means when a government has waited until the deadline is close.

Three pots, one deadline

The frozen money is spread across three pots. About €10.4bn comes from Hungary's Recovery and Resilience Facility allocation, the EU's post-pandemic investment fund. That money has been blocked because Budapest has not met 27 "super milestones" on judicial independence, anti-corruption and audit controls (European Commission).

A further €6.3bn in cohesion funding, the EU money used for regional development, was frozen by EU governments under the Conditionality Regulation. That mechanism allows payments to be blocked where rule-of-law failures put the EU budget at risk (Council of the EU). A third amount, roughly €2.2bn, depends on restoring autonomy to universities moved into government-linked foundations (European Commission).

The recovery money is the pressing case. Hungary has already lost about €1bn permanently through automatic decommitment (Centre for European Reform). The rest runs up against an August 31 deadline: all milestones met by then, payment requests lodged by September, and disbursements completed by the end of the year. Miss a super milestone, and the money disappears (DW).

The development bank shortcut

Budapest's revised recovery plan would send a large share of the money through the Hungarian Development Bank, known as MFB. The government would put EU funds into the bank as capital, which counts as a verifiable investment under EU rules. The actual spending, on SME loans, rental housing and railway vehicles, would then move through MFB programmes over several years (Telex).

Vitézy Dávid, the minister overseeing the process, said on June 25 that the Commission had approved the revised plan and that a new MFB law would follow. The bill is intended to turn MFB from what he called the government's "house treasury" into a bank capable of managing EU money (Portfolio).

That is where the design matters. Bankwatch has warned that putting recovery money into an MFB capital injection could weaken scrutiny. The investment policies guiding the later spending would sit outside the RRF monitoring committee and be overseen by separate professional committees whose composition the monitoring body does not control (Bankwatch).

The Commission could verify that capital had entered a reformed bank. Whether that capital later funds competitive tenders and avoids conflicts of interest would depend on oversight continuing long after the accounting box has been ticked.

Who verifies, and when leverage ends

There is a serious argument for conditionality in this case. The money was frozen, the freeze created pressure, and Budapest is now legislating in exactly the areas the Commission identified: procurement transparency, foundation governance and asset declarations (Europa Press, Al Jazeera). German public broadcasters have cast it as a credibility test: anti-corruption laws passed under EU pressure should trigger payments only once they are fully implemented (Deutschlandfunk, Euractiv).

Speed brings a separate danger. Amnesty International criticised the rushed consultation process, arguing that hurried rule-of-law reform can end up reproducing the same weakness it claims to correct (taz).

The two biggest pots are also controlled differently. The Commission can approve recovery payments through its own milestone assessment. The cohesion freeze was imposed by EU governments through a Council vote, where member states decide collectively, so lifting it requires a separate political decision. The rules for how MFB would spend the money are still not visible outside the process; according to Vitézy's own announcement, the bill text has not been published.

The new legislation gives Hungary a place at the verification table. The precedent will be set by what happens next: whether the Commission follows the money after it reaches the development bank, or treats the capital injection itself as proof that reform has been done.