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Hungary embarks on judicial reform hoping to unlock EU cash

Hungary embarks on judicial reform hoping to unlock EU cash

by host

The Hungarian parliament on Tuesday started debating a judicial reform which, if passed, would unlock over €13.2 billion in EU funds for the country at a time when its economy is suffering from low growth and high prices.

At issue is the independence of the judiciary, which EU officials claim has been hindered by the government of Prime Minister Viktor Orbán.

A proposed reform, however, aims to strengthen independence in several ways, for example by ensuring that the National Judicial Council, a judiciary watchdog, remains independent as well as by reforming the Supreme Court and the Constitutional Court to shield them from political influence and to allow cases to be referred to the European Court of Justice for preliminary rulings.

The Hungarian parliament is set to vote on the reform on Wednesday.

“If the judiciary independence case is settled, it unlocks the huge majority of the cohesion programs,” EU Budget Commissioner Johannes Hahn told a group of journalists last week.

Budapest’s arm-wrestle with Brussels over rule-of-law issues has seen EU cash flow to the country dry up this year — an unwelcome move in the face of ongoing economic contraction and inflation, which hit a fresh high in April at 25.4 percent year-on-year.

That has pushed Orbán’s government to intensify negotiations with Brussels so as to resume EU payments. The judicial reform is part of those efforts.

Green light given

Three EU officials told POLITICO on condition of anonymity to discuss confidential talks that the Commission gave a preliminary green light to the proposed reforms last week. This followed Justice Minister Judit Varga celebrating as much on her Facebook page last week.

Despite the progress, a political endorsement from the Commission is still a few months away, and will likely hinge upon progress in negotiations on other issues, including anti-corruption efforts.

Orbán could also up the pressure by vetoing key decisions, an obstruction tactic he has deployed successfully in the past. Budapest’s veto power is already holding up Sweden’s bid to join the NATO alliance, which requires a unanimous vote. Other upcoming decisions requiring unanimity include new sanctions against Russia and a pending review of the bloc’s budget.

Hahn was in Budapest on Tuesday to discuss the budget review with Orbán’s government.

If the reform is passed this would be considered a win for Orbán’s government — and a let-down for its critics, some of whom are unhappy with the way the proposed reforms themselves have come about.

“The technical deal between the Commission and the Hungarian government on the judicial reforms contains positive measures to strengthen an independent judiciary,  but the process in which they are being rammed through the Hungarian parliament for a vote tomorrow violates lawmaking rules and key EU milestones on transparency of lawmaking,” said Márta Pardavi, co-chair of the Hungarian Helsinki Committee, told POLITICO on Tuesday.

Frozen cash

In December, the Commission held back Hungary’s whole envelope of cohesion funds, equal to €22 billion, after finding the country was failing to comply with the EU charter on fundamental human rights and provisions therein related to judicial independence. 

But the judicial reform would see Hungary be able to claim €13.2 billion, the three EU officials said. The rest of the cohesion funds remain blocked on other grounds, however,

A majority of EU countries and the Commission decided to freeze €6.3 billion of funds to Hungary last December under the so-called conditionality mechanism, a new legal tool that allows Brussels to withhold EU funding if it finds a country is backsliding on democratic norms. In this case, funds will be unblocked only if Hungary undertakes 17 remedies related to anti-corruption efforts. 

Another €2.5 billion is tied to three other ongoing disputes between the Commission and Orbán: a “child protection law” widely recognized as being homophobic; Hungary’s treatment of asylum seekers; and the academic independence of Hungarian universities.

That leaves some €13.2 billion for Hungary to unlock if a judicial agreement is struck, the officials said, cautioning that the Commission would have to evaluate the judicial reforms before giving its final stamp of approval.

Separately, the country is also awaiting €5.8 billion in grants and €6.6 billion in cheap EU loans under the post-pandemic recovery fund. But to do this, it will have to clear 27 conditions or “supermilestones.” While the judicial reforms will clear some of those, the country also has to fulfill the 17 anti-corruption remedies it signed up for under the conditionality mechanism, and two conditions linked to audit and control.

Lili Bayer contributed reporting.

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