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Hungary is set to lose permanent access to more than 1 billion euros in EU funds on January 1, as tensions between Budapest and Brussels undermine the country's ability to pull itself out of recession – and undermine Prime Minister Viktor Orbán's re-election bid. 2026.
The EU's currency blinkers have hit Hungary at a time when his government has nowhere to run. Its budget this year is more than 4.5 percent of GDP, increasing political pressure.
Hungary's economy shrank by 0.7 percent in the third quarter – the second contraction in a row – putting the economy in a technical crisis amid weak demand in the automotive, electronics and pharmaceutical sectors that dominate its manufacturing base.
Of the 6.3 billion euros in funds frozen by Brussels due to concerns about the rule of lawBudapest will permanently lose €1.04bn because this money must be delivered by the end of 2024 or expire. Hungary also loses €1mn a day in EU funding due to illegal treatment of asylum seekers; Its total losses on the treatment of asylum seekers will be €200mn by the end of the year.
Both come on top of a single 200 million euro fine imposed by the European Court of Justice in June for breaching asylum laws and disregarding a previous conviction.
In total, €19bn in post-pandemic recovery funds and other EU resources remain blocked.
János Bóka, Hungary's EU affairs minister, said in mid-December that it was “very difficult” not to interpret the withdrawal of funds as “political pressure”, adding that Budapest would take action “to correct this discriminatory situation”.
The government is seeking compensation for a June ECJ ruling that led to multimillion-euro fines, in another sign that relations between Brussels and Budapest have hit rock bottom.
Hungary's opposition party seized the opportunity to criticize Orbán's government for the economic downturn.
Péter Magyar, Orbán's ally-turned-enemy whose party beat Orbán's Fidesz in June's EU elections and has since come out on top in opinion polls, said: “You have had unlimited power and billions of EU money for 14 years. . . This ship has sailed. Hungarians will not wait. Enough is enough!”
EU funding is likely to remain blocked until the election, with neither side willing to compromise on what it considers important, including anti-corruption measures, judicial independence, and Hungary's treatment of minorities and asylum seekers.
Brussels has also questioned Budapest's belief that it can increase spending over the next four years, based on Hungary's expectations of stellar growth.
The two sides have until mid-January to agree on a coherent fiscal plan between 2025 and 2028, with the EU set to give the country a bad score unless the government cuts spending.
“There will be a lot of fighting,” said Péter Virovácz, ING's Hungarian economist.
In the 2025 budget, billions of euros worth of mostly EU-backed investment and social spending have been scrapped, prompting Magyar to tour the country, drawing attention to dilapidated hospitals, inadequate childcare centers and abandoned train stations. things for decades. .
Economy Minister Márton Nagy admitted that the government cannot fully cover the gap left by EU funding.
“You can't just say you want a shiny new hospital, you want money. Because of that you need to grow,” Nagy told the Financial Times. “The economy must be fixed first. . . For years we have stumbled from crisis to crisis, Covid, energy crisis, war, now the weakness of the German economy. . . We all know that tax revenue is lost, so we need to get it back. “
Nagy insisted that the government would not spend more, saying it would reduce spending to boost growth to 0.5 percent of GDP.
Instead of using public money to stimulate the economy, the economy minister has suggested that people use about 5bn of private pension savings to buy houses or make repairs tax-free, in a move aimed at boosting weak demand.
Orbán, meanwhile, is betting that investors from Asia can fill the gap – a policy he calls “economic neutrality”.
Chinese investment in Hungary has increased in recent years, but few think that it can fully compensate for the lack of money from Brussels.
Before the spats between Brussels and Budapest deepened in 2022, the EU was ready to finance several infrastructure projects in Hungary.
Those included a train connection from central Budapest to the capital's airport.
“We could have had a golden age, with more than 10bn 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 secretary of state for transport. “We lost almost all of that.”
“EU funding is an important part of public investment in Hungary,” EU economic commissioner Valdis Dombrovskis told the FT in an interview in December, adding that “it is important that Hungary clearly does what is necessary to ensure the availability of funding.” “.