Hungary stands to lose more EU funds under possible budget rule changes

COPENHAGEN — Hungary could lose out on big sums of EU money as the European Commission looks into tightening conditions for how it pays out funds under its long-term budget, a top Commission official told POLITICO.

Budapest is already losing out on some €18 billion in EU funds that the Commission is withholding over breaches of European law, Michael McGrath, the commissioner in charge of democracy and rule of law, said in an interview.

But the country stands to lose out on much more as the Commission looks into tweaking its long-term budget rules so that payouts are more tightly linked to respect for the rule of law, he said.

"I do have serious concerns about the current state of affairs around the rule of law, and the impact that could have on democracy within Hungary," McGrath said in an interview on the sidelines of the Copenhagen Democracy Summit.

Warning that the Commission would look at "what more tools we need" to ensure rule of law in Hungary, he added: "We will look now in the context of the upcoming MFF [multi-annual financial framework], how we can build a closer link between rule of law and access to EU funding." The MFF is Europe's seven-year budget.

The standoff between Viktor Orbán and the European Commission is building to a fever pitch as the Hungarian prime minister tightens his grip on civil society, including by banning a Pride parade set to take place in June.

On Thursday, Orbán's Fidesz party proposed a law that amounts to a Russian-style crackdown on non-governmental groups by allowing the government to blacklist organizations that receive foreign funding.

McGrath, who traveled to Budapest in March, said he had returned with "serious concerns" about the state of democracy in the country.

"The overarching and clear message from civil society and from the media was that they feel restricted," he said. "They feel the cold wind coming at them when they go about their day-to-day work, and that's not good. That's not healthy for democracy."

Commenting on the Pride ban, he said it was "counter to the values of the European Union."

"Rule of law is a fundamental part of EU membership," he added. "It's not an optional extra and it must be respected by all member states. And the situation in Hungary is just not acceptable."

Currently, the EU conditions payouts of European funds on respect for EU law under what's known as the Rule of Law Conditionality Mechanism.

McGrath is suggesting further tightening the link between respect for law and future payouts as the Commission prepares to unveil its MFF proposal in July.

The next MFF won't kick in until 2028, but any proposal to tighten conditionality would send a political signal ahead of elections in Hungary due to take place next year.