Orbán government to lose billions of EU funds – compensates with Chinese loans and new taxes

According to sources familiar with the negotiations between the European Commission and Hungary, the Orbán government appears to have effectively relinquished €1 billion of EU funds. New taxes might offset the shortfall, but the recently acquired Chinese loans could also be related to the forfeited EU money.

The Hungarian government might have given up on frozen EU funds

Válasz Online reports that discussions between the European Commission and Hungary on frozen EU funds and university scholarships have reached an impasse. The Hungarian government has seemingly abandoned efforts to secure €1 billion. Sources indicate that the government is no longer making even minimal attempts to retrieve these funds. Additionally, negotiations on renewing Erasmus scholarships and Horizon research grants, previously withdrawn from foundation universities, have also stalled.

This development is unexpected, considering that last autumn it seemed likely that the Commission and Hungary would reach an agreement. Now, János Bóka, who represents Hungary in Brussels, blames the Commission for the stalemate. However, sources told Válasz Online that the responsibility lies with the Hungarian side.

To release most of the frozen EU funds, the Hungarian government must meet conditions to comply with the rule of law mechanism. During 2022 and 2023, the government made proposals and engaged in active negotiations with the Commission, and several reforms were agreed upon.

However, Válasz Online states that the conciliation process faltered when the Commission rejected a Hungarian proposal during an exchange of letters in 2023. The Hungarian government did not submit a new proposal but instead requested further clarification on why their plan was rejected. The Commission did not provide a substantive response, merely confirming that they expected a different approach. Subsequently, negotiations ceased entirely.

The nature of the underlying dispute, whether legal or political, is unclear, but the situation is detrimental to the country. If the Hungarian government does not take the necessary measures to lift the sanctions by the end of this year, €1 billion of the €6 billion total cohesion funds frozen due to the conditionality mechanism could be permanently lost.

Hungarian government uses new taxes to supplement lost EU funds?

Válasz Online highlighted that the €1 billion Hungary seems to have forfeited is exactly the amount the Orbán government intends to collect from the new so-called defence contribution tax.

“The budget needs the money,” writes the paper, “but this way it will be paid not by taxpayers in other EU member states, but by Hungarian companies and indirectly by their Hungarian customers.”