Hungary’s cohesion crisis, EU funds in limbo with rule-of-law standstill

This article is part of our special report EUYou – Europe is you.

The fate of €22 billion in cohesion policy funds for Hungary remains uncertain. Political tensions with Brussels over rule-of-law concerns has left a significant portion of these funds frozen. If Hungary refuses to play by the rules, its poorer regions will continue to struggle to bridge the cohesion ravine.

Cohesion policy is central to the EU in reducing disparities between member states. It takes the cake as the largest spending item on the annual budget 2025, with a staggering €66 billion to support it, leaving behind other priorities such as migration and border management, security and defence, or the Single Market.

Nearly €14 billion have been planned for technical assistance, which is almost 4 per cent of the cohesion policy budget allocated for 2021-2027.

Support is made available through the European Regional Development Fund (ERDF), European Social Fund (ESF), Cohesion Fund (CF), and Just Transition Fund (JTF).

This technical assistance can be reimbursed to a member state in two ways: either based on real costs (actually incurred by beneficiaries of technical assistance) or in a simplified way as a flat-rate financing based on the implementation of a programme.

Thirteen member states have chosen to programme technical assistance based on real costs, including Hungary. The others have chosen the option based on flat rate financing proportional to progress in the investment expenditure declared under the programme priorities.

In the case of Hungary, €38 million will be implemented through the Operational Programme Plus, of which the EU will contribute some €31.47 million, helping the country achieve its 2030 social targets under the European Pillar of Social Rights.

In total, Hungary is set to receive €22 billion in cohesion funds for the period 2021-2027, to help implement joint EU priorities that balance territorial development and ensure a fair climate and digital transition, whilst supporting an innovative and inclusive social market economy.

Energy efficiency is the most expensive spending item in the allocation of funds with €6.7 billion, followed by other priorities such as supporting the labour market (€5.3 billion), transport infrastructure (€1.7 billion), and the green energy transition (€215 million).

Frozen funds

However, EU funds to Hungary’s poorer regions and also post-Covid economic aid to help growth, remain frozen as the Commission insists that right-wing Prime Minister Viktor Orbán reverses anti-democratic reforms.

In December, Budapest tried to resolve the situation, announcing the adoption of an amendment to the law regulating conflicts of interest, supposed to reduce the risks flagged by Brussels.

However, the Commission decided that the country’s latest legislative amendments failed to adequately resolve concerns about conflicts of interest in the boards of public interest trusts, maintaining the suspension of 55 per cent of cohesion policy funding for 2021-2027, and prohibiting new EU funding commitments with public interest trusts.

Additionally, Hungary’s Recovery and Resilience Plan (RRP) is tied to fulfilling key rule-of-law milestones under the conditionality regime. Until all concerns are addressed, no payments under the RRP will be disbursed.

The fund absorber

Magyar Nemzet, a Hungarian newspaper close to the government, recently reported that despite disputes, funding from Brussels has not been entirely cut off, and Hungary remains a mid-tier fund absorber among EU member states.

In 2023, Hungary received €6.5 billion in EU funds, with a net gain of €4.5 billion after its contribution to the EU budget, placing it among the top recipients alongside Poland and Romania.

While portions of the new seven-year budget and RRF remain inaccessible, Hungary has drawn funds from the 2014-2020 cohesion framework and the new Common Agricultural Policy.

The newspaper recognises the importance of EU funds in supporting regional development, infrastructure, business growth, and sustainability, but notes that EU funding alone has not significantly boosted the country’s economic standing.

Although political disputes with Brussels have delayed assessments of Hungary’s economic programmes and may limit future growth, the country’s finances are stable, with manageable debt levels and a balanced primary budget.

While the ongoing political tensions complicate funding negotiations, an agreement will eventually be required, underscoring that the issue is more political than economic.

[Edited By Brian Maguire | Euractiv's Advocacy Lab ]