EU approves Hungary's recovery plan, but withholds cash, moves to freeze other funds

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By Jan Strupczewski


BRUSSELS (Reuters) -The European Commission approved on Wednesday Hungary's post-pandemic recovery plan but said Budapest would not receive any payments - worth a total 5.8 billion euros - until it implements reforms to bolster judicial independence and tackle corruption.

Separately, the Commission also asked EU governments to freeze 7.5 billion euros that Hungary would normally receive from the EU budget as part of funds transferred to poorer member states to help equalise living standards across the bloc.

The EU executive's move to withhold funds comes after months of talks with Prime Minister Viktor Orban's right-wing government over high-level graft, the independence of courts, non-governmental institutions and media, and minority rights.

"We are today giving our positive assessment to Hungary's ... recovery plan. Regarding the rule of law, Hungary has committed to significant reforms. Only once these reforms are implemented in full will access to the EU’s recovery fund be unlocked," Commission Vice President Valdis Dombrovskis said.

The recovery plan is a spending blueprint prepared by member states seeking EU money to help recover from the economic damage caused by the coronavirus pandemic.

Hungary submitted its plan to the Commission in May 2021, but concerns over the rule of law delayed its approval. If there had been no approval this year, Hungary would have irrevocably lost 70% of the EU grants for which it is eligible.

Hungary's minister responsible for talks on EU funds said he hoped funds would be released in 2023 as the suspension of some payments was conditional on legislation now awaiting approval.

"In the timeline we set for ourselves there are still deadlines... We are not yet at the finishing line," Tibor Navracsics told a briefing, adding Hungary was in continuous dialogue with the Commission and was ready for compromises.

Orban's chief of staff Gergely Gulyas said next year Hungary expected to receive about 2,500 billion forints ($6.36 billion)in EU funds, probably in the second half of 2023.

'SUPER MILESTONES'

Hungary must still deliver "fully and correctly" on 27 "super milestones" including tackling corruption and rule of law reforms to unblock payouts, the Commission said.

EU diplomats expect the approval of Hungary's recovery plan to help overcome Budapest's opposition to using the EU budget to pay 18 billion euros in aid to Ukraine next year.

The use of the EU budget would make the support for Ukraine regular and predictable, allowing Kyiv to plan ahead, as opposed to the more haphazard aid provided in 2022.

EU officials also hope that Hungary will drop its veto to the OECD-agreed global minimum corporate tax, which Budapest has been blocking within the 27-nation EU. Opposition to the tax and the Ukraine financing plan were seen by many in Brussels as leverage Budapest was using to get its recovery plan approved.

The Commission's move to suspend the 7.5 billion euros of regular EU funds is the first use it has made of new powers to protect the European budget if there is a perceived risk that money could be misspent.

EU governments have until Dec. 19 to vote on the suspension proposal, which requires a qualified majority to pass. Once Budapest has addressed Commission concerns on judicial independence and corruption, the funds will be unblocked.

($1 = 393.1300 forints)

(Reporting by Jan Strupczewski, additional reporting by Krisztina Than in BudapestEditing by Gareth Jones)

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