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Hungary is set to permanently lose access to just over €1 billion in EU funds on January 1, as disputes between Budapest and Brussels hamper the country’s ability to emerge from recession — and undermine Prime Minister Viktor Orbán’s 2026 re-election bid.
The freezing of EU funds has hit Hungary at a time when her government has little room to maneuver. Its budget deficit is more than 4.5 percent of GDP this year, increasing political tensions.
Hungary’s economy shrank 0.7 percent in the third quarter – its second contraction in a row – pushing the economy into a technical recession amid weak demand in the auto, electronics and pharmaceuticals sectors that dominate its manufacturing base.
Of the 6.3 billion euros of funds frozen by Brussels due to concerns about rule of lawBudapest will permanently lose 1.04 billion euros as this amount must be distributed by the end of 2024 or expire. Hungary also misses out on 1 million euros a day from EU funds due to illegal treatment of asylum seekers; its total losses due to the treatment of asylum seekers will amount to 200 million euros by the end of the year.
Both come on top of a one-off €200m fine handed down by the European Court of Justice in June for breaching asylum rules and ignoring an earlier ruling.
In total, EUR 19 billion of post-pandemic recovery funds and other EU sources have been blocked.
János Bóka, Hungary’s EU affairs minister, said in mid-December that it was “very difficult” not to interpret the withdrawal as “political pressure”, adding that Budapest would take steps to “correct this discriminatory situation”.
The government is also seeking compensation for a June ECJ ruling that led to multimillion-dollar fines, another sign that relations between Brussels and Budapest have reached a new low.
The Hungarian opposition took the opportunity to blame Orbán’s government for the economic woes.
Péter Magyar, an Orbán ally-turned-foe whose party overtook Orbán’s Fidesz in June’s EU elections and has been leading the polls since then, said: “You had 14 years of unlimited power and billions in EU funds. . . This ship has sailed. The Hungarians will not wait. That’s enough!”
EU money is likely to remain blocked until the election, with neither side backing down on what each sees as core issues, including anti-corruption measures, the independence of the judiciary and Hungary’s treatment of minorities and asylum seekers.
Brussels also questioned Budapest’s belief that it can increase spending over the next four years, based on Hungary’s expectations of strong growth.
The two sides have until mid-January to agree on a compromise fiscal plan between 2025 and 2028, with the EU giving the country a bad rating unless the government cuts spending.
“There will be a lot of tug-of-war,” said Péter Virovácz, ING’s senior economist for Hungary.
Billions of euros worth of investment and social benefits, mostly funded by the EU, were canceled for the 2025 budget, prompting Magyar to tour the country, drawing attention to crumbling hospitals, inadequate childcare facilities and railway stations that have been abandoned for decades. elements.
Economy Minister Márton Nagy admitted that the government cannot fully fill the gap left by EU funding.
“You can’t just say you want a great new hospital, you need money. You need growth for that,” Nagy told the Financial Times. “The economy needs to be fixed first. . . For years we staggered from crisis to crisis, Covid, energy crisis, war, now the weakness of the German economy. . . We all know that tax revenue is missing, so we have to recreate it.”
Nagy insisted the government would not overspend, saying it would limit the use of growth-stimulating funds to 0.5 percent of GDP.
Instead of using government stimulus funds, the economy minister proposed allowing people to use private pension fund savings worth around 5 billion euros to buy or renovate property tax-free, in a move aimed at boosting weak demand.
Orbán, meanwhile, is betting that investors from Asia could fill the void – a policy he has called “economic neutrality.”
Chinese investment in Hungary has grown in recent years, but few think it can fully compensate for the lack of funding from Brussels.
Before the disagreements between Brussels and Budapest intensified in 2022, the EU was ready to finance several major infrastructure projects in Hungary.
These included a rail link from the center of Budapest to the capital’s airport.
“We could have had a golden age, with more than 10 billion euros spent on the sector in this decade alone,” said Dávid Vitézy, who headed Budapest’s transport authority at the time and later served briefly as Orbán’s state secretary for transport. “We lost almost all of that.”
“EU funding is an important part of public investment in Hungary,” EU Economy Commissioner Valdis Dombrovskis said in an interview with the FT in December, adding that “it is important that Hungary clearly does what is necessary to ensure the availability of funding”.
