(Bloomberg) — The European Union is running out of time to approve Hungary’s recovery funds ahead of a key deadline in a rule-of-law dispute that’s threatening to hold up other urgent priorities, including aid to Ukraine.
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The European Commission, the bloc’s executive arm, likely won’t issue its verdict next week on the investment and reform proposals sent by Budapest, as initially expected, people familiar with the matter said, despite progress in addressing issues related to the rule of law and judicial independence.
If the decision indeed slips beyond a Nov. 22 commission meeting, it would leave very little time for EU finance ministers to evaluate them before their final meeting of the year on Dec. 6. EU governments need to approve Hungary’s plan by the end of the year, or Budapest will lose 70% of the preallocated recovery funds, a potential loss of some €4.1 billion ($4.2 billion).
EU diplomats said that member states — including the Netherlands, Sweden, Finland and Denmark — have made clear they need time for a proper assessment of the Hungarian plan and have national procedures they must complete in advance.
In addition, EU diplomats warned that it’s getting difficult to decouple the Hungarian recovery plan from unrelated priorities, including a new €18 billion package for Ukraine and a proposal for a minimum corporate tax. Both dossiers are currently being blocked by Budapest.
Finance ministers are expected to approve the funds for Kyiv on Dec. 6, but a delay of the Hungarian plan could derail the arrival of the badly needed funds to the Ukrainian coffers beyond January, an EU diplomat warned.
The priority is to approve the funds for Ukraine and get Hungary to agree on that, the diplomat said, noting that Kyiv can’t afford any delays.
Some officials and diplomats expect that the EU will back the Hungarian plan, which would allow Prime Minister Viktor Orban’s government to eventually access €5.8 billion in non-refundable grants. That would also send a powerful signal to financial markets after a long standoff with European partners over fundamental rights at a tough time for the country.
In parallel, investors are also waiting for the EU’s decision on Hungary’s progress in meeting anti-graft concerns, which had prompted the bloc to propose to freeze €7.5 billion ($7.8 billion) of other EU funding for the eastern European nation.
Approval of the recovery plan and Hungary’s anti-corruption steps will likely trigger a backlash from Hungary’s critics, particularly in the European Parliament, who say the country continues to flout the rule of law.
Hungary hasn’t managed to “erase completely” graft concerns with its pledge to pass 17 pieces of anti-corruption legislation at the EU’s request, European Parliament lawmaker Petri Sarvamaa said at a briefing in Brussels on Thursday, where he helped present the chamber’s assessment.
The commission should therefore still propose financial penalties for Hungary, he said. EU finance ministers, who meet on Dec. 6, make the final decision on any funding suspension.
“Now whether it will be the same amount” as the original €7.5 billion funding freeze or less, “that remains to be seen,” said Sarvamaa of the conservative European People’s Party.
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Hungary has a “good chance” of resolving its disputes with the EU, Cabinet Minister Gergely Gulyas told reporters on Wednesday, saying the commission could “realistically” decide to endorse it the week of Nov. 18.
Hungary’s economy is under pressure due to the energy crisis and price hikes, and the country’s assets have been battered over uncertainty about the arrival of EU funds. The forint fell more than 1% against the euro after the European Parliament presented its findings.
Eric Mamer, the commission’s chief spokesman, said that “there was and is as yet no official decision on the date” and the commissioners’ heads of cabinet decide the agenda for their meetings.
The Czech presidency still hopes that the EU finance ministers could give their approval on Dec. 6, but is ready for all options, an EU diplomat said. One of the alternatives would be to obtain the governments’ blessing via a videoconference.
–With assistance from Stephanie Bodoni.
(Updates with European Parliament report in 11th paragraph, forint in 15th.)
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