Hungary’s frozen cohesion funds testing EU’s rule of law conditionality

This article is part of our special report Cohesion under pressure, Hungary tests the EU’s red lines.

Hungary’s standoff with the European Union, resulting in the freezing of cohesion funds, is setting a precedent, raising questions about whether the practice of withholding money leads to reform or deeper fragmentation.

The Cohesion Policy, designed to reduce economic and social disparities among regions of the European Union, has long been a cornerstone of the bloc’s commitment to unity and development.

For countries like Hungary, one of the largest beneficiaries of the policy, cohesion funds have meant billions of euros invested in infrastructure, education, and modernisation, helping narrow the gap with Western Europe.

However, Budapest’s ongoing rule of law dispute has put the policy in a paradox, with concerns about whether it is turning into a tool for political leverage rather than solidarity. In 2022, the EU froze approximately €22 billion in funding allocated to Hungary.

The action was taken in response to issues related to judicial independence, asylum rights, discrimination against LGBTQ+ individuals, and restrictions on academic freedom. While €10 billion was released in 2023 after Hungary agreed to drop its veto on EU aid to Ukraine, a significant portion of the funds remains inaccessible.

Strengthening conditionality

Zselyke Csaky, senior research fellow at the Centre for European Reform, says the measures undertaken by the EU to counter violations of the rule of law have had mixed results, as observed in Hungary and Poland.

The Commission has withheld over €168 billion in total under its dedicated instruments – a sum roughly 16-17 per cent of Hungary and Poland’s GDP, respectively. But despite these large suspensions, legal reforms have been limited or symbolic.

While the frozen funds mobilised Polish voters to support a new pro-EU government that has begun reforms, Hungary’s response and the subsequent release of some funds are seen as superficial by the country’s civil society.

Csaky questions whether conditionality will be effective in the long term, especially if richer member states begin to violate EU values, although she acknowledges it as the bloc’s most powerful tool for defending the rule of law.

For the tool to strengthen and be truly impactful, conditionality must be applied consistently, transparently, and tied more closely to tangible improvements before funds are released, she concludes.

The Hungarian ‘knot’

Tibor Dessewffy, director of the Digital Sociology Research Centre at Eötvös Loránd University in Budapest, also believes that Hungary’s defiance towards shared European values is forcing the bloc to reshape how it navigates its internal fractures.

Taking the banning of the Budapest Pride and the departure of pro-LGBTQ+ diplomats as an example, Dessewffy writes for the European Council on Foreign Relations (ECFR) that Viktor Orbán has presented EU ambassadors with a dilemma.

They could either support Pride and feed Orbán’s narrative of Western decadence or stay silent and concede ideological ground. Either way, Orbán retains the capacity to turn the situation to his advantage.

Dessewffy observes a shift in the political landscape in Hungary, with the opposition reinventing itself, redirecting attention to economic hardship rather than falling for Orbán’s cultural provocations.

Calling the Hungarian prime minister a “deliberate disruptor” within the bloc, the expert adds that the EU is beginning to adapt to the repeated defiance from Budapest, looking for alternative frameworks that bypass Hungary.

What is emerging is a kind of “zombification” of EU institutions, where formal structures remain, but real political momentum shifts to smaller, more flexible alliances that exclude illiberal actors like Hungary.

This evolution mirrors the concept of a “two-speed Europe”, not driven by Western elites, but as a defensive response to the obstructionism of a small, economically weaker member state.

But whether this leads to a stronger, more cohesive Europe or a fragmented union will depend on how effectively the bloc can neutralise the damage inflicted by those working to undermine it from within.

Getting the money back

Despite everything, Hungary has been employing legal and technical manoeuvres within EU budgetary rules to regain access to over €750 million in EU funds, as depicted in an article by the Financial Times.

These include a reallocation of funds - €157 million from its original spending plan to areas less scrutinised by the EU - as well as the attempt to reprogramme an additional €605 million during the EU’s midterm budget review.

These tactics have raised alarms among several EU member states, including Germany and France, who fear that such reprogramming could undermine the EU’s conditionality mechanisms designed to enforce compliance with democratic standards.

The bloc must balance pressure with pragmatism. For cohesion to remain a meaningful instrument of unity, the Union must find a way to ensure its core values are respected, while avoiding the long-term marginalisation of one of its own member states.

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