Much ado about… what exactly? The European Parliament taking the European Commission to the European Court over the unfrozen funds for the Hungarian government

by | Apr 3, 2024

(cover photo: Frederick Florin/AFP via Politico)

The legal-political debate over the rule of law situation in Hungary under the government of Viktor Orbán has been raging on for years, and during the last two years it has grown into becoming an unusual inter-institutional struggle within the European Union. One peek point of this is the decision of the European Parliament to sue the European Commission over the release of €10.2 billion in previously frozen funds to Hungary.

After adopting a resolution on the matter, the European Parliament made the final decision about this on the week starting with 18 March, Roberta Metsola, the President of the Parliament informing the leaders of the political groups on 21 March, Thursday. She has the final authority (with the backing of the body) to launch such a legal action against other institutions before the European Court of Justice, with the deadline for submission, 25 March, closing.

There are probably more goals of the lawsuit. One is probably to put pressure on Ursula von der Leyen, the President of the Commission as she seeks a second term at the Commission top job, using the delicate subject of rule of law all through her first mandate. At the same time, as indicated above, this issue has gradually grown into one of the hottest topics at the table of European politics, demanding even more visible actions with the EP elections closing in. Many MEPS, especially on the left and green side of the EP have been using this issue for getting attention and cementing their political positions by confronting Viktor Orbán and the Hungarian government – often supported by the moderate right, Von der Leyen’s European People’s Party (EPP), where more influential figures have also developed a sometimes even personal resistance and dismay towards the problematic Hungarian leader (concluding at the removal of Orbán’s party, Fidesz, from the EPP three years ago after a lengthy process). As a result of that, the EPP group has not rejected the vote, but in a separate statement they put the blame on the entire body of the European Commission (the so-called College), trying to ease the pressure on the President.

The Commission’s contested decision in December

The European Commission allowed in December 2023 the release of 10.2 billion Euros in cohesion funds for Hungary, a part of the amount which it had frozen almost a year before because of the failure of the Hungarian government to address persistent rule of law-related concerns. This decision was made by the Commission, practicing its own authority, not in the framework of the so-called conditionality procedure (which is headed by the member states, making decisions in the Council of the European Union, still initiated by the Commission).

The decision has made it possible for the Hungarian government to submit reimbursement requests of up to this amount to finance development projects across the country – most of which was by that time cross-checked, approved by the Commission. This aspect usually was not elevated in media reports about the situation, but we think it is very important, as this – to some extent – prevents the misuse of these funds.

The reasoning can be summarized by this: according to the Commission, the Hungarian government needs to meet twenty-seven so-called “super milestones” and four “horizontal enabling conditions” (in some cases overlapping each other), to access all the funds (currently more than 30 billion Euros in cohesion and recovery funds) frozen since December 2022. Communications from the Commission has desperately tried to argue that the Commission was satisfied with the legislative steps by the Hungarian government to restore “sufficient guarantees to say that independence of the judiciary will be strengthened” and emphasised that the whole process is not over, and the Commission will continue to “carefully monitor the situation” in Hungary and it is still ready to take any steps as needed.

It is also important to add, that regardless of the decision of the Commission, the Hungarian government is still missing most of the EU funds, as the majority is frozen under the so-called “conditionality mechanism” over concerns far outreaching the justice system. Those cover issues related to public procurement, conflicts of interest and corruption, academic freedom etc. As mentioned above, to release these funds, the decision of the Council is needed, the Commission shall not decide about these on its own. Additionally, there are other problematic areas as well, which may lead to freezes in the future, in the form of various possible infringement procedures. The 10.2 billion Euros now are only a small part of the whole amount.

The Commission has also added, that by not making this decision, it risks a legal case against itself, initiated by the Hungarian government (using the legislative mistake of lack of exact statutory criteria of evaluation), and politically speaking, in the eyes of the Commission, the worst thing that could happen, would be losing a case against the Hungarian government, seriously undermining its efforts on the questions related to rule of law. At the same time, for the Hungarian government, winning a case like that would be a vast political triumph – this way, the Commission chose the “safe way” by releasing the funds in question.

Criticism and position of the European Parliament and other actors

Of course, critics, spearheaded by many members of the European Parliament were not willing to take the reasonings above, and soon all kinds of politically-motivated explanations started to go public about the decision of the Commission, the most popular being the one that accused the European Commission with engaging in a political deal to appease Budapest in upcoming important political questions which require unanimity among member states (most importantly, financial/military assistance to Ukraine), which has been constantly denied by the Brussels-based executive. At the same time, Hungarian governmental political circles have constantly sent puzzled messages about a possible deal on the table and denying the “coupling” of these questions at the same time.

These theories have only partly been justified later, as at the upcoming EU Summit, Viktor Orbán did not veto the membership negotiations with Ukraine, but vetoed the financial assistance. We need to add, that on the membership negotiations, the Hungarian prime minister could not have applied a legally relevant veto anyway (that decision had to be made by the Council, not the European Council), so his famous “coffee break” (leaving the session for that few minutes) was rather a political PR-stunt to provide him an easy explanation, if needed. But the fact of vetoing the financial plan is a proof of not having a background agreement.

The “justice reform”, which the Commission considered satisfactory to release part of the funds, has also been criticised by many influential actors from civil society as well.

The European Parliament adopted a resolution, condemning Viktor Orbán’s previous veto, calling it a “violation of the principle of sincere cooperation,” continuing with the statement “in no way can the EU give in to blackmail and trade the strategic interests of the EU and its allies by renouncing its values”. It addressed the possibility to turn to the EU Court, and also stated no further funds (under the cohesion and recovery sources) should be released and “must be treated as a single, integral package, and that no payments should be made even if progress is made in one or more areas but deficiencies still persist in another.” The adoption of the text was preceded by a heated debate in the Parliament, giving some hard time to Ursula von der Leyen, held responsible for releasing the funds, not even trying to hide the vastly political nature of the whole debate. The President expressed all the abovementioned reasons, but she did not get the general acceptance by the members of the European Parliament. Neither did the member states: the Council was also badly criticised, firstly for not being able to curtail the “abuse” of veto power and secondly, for the “failure” to advance the Article 7 procedure going on against Hungary since 2018. It was clear that the European Parliament, the only directly elected political institution of the EU wants to put the whole question in a wider political context with the approach of the elections.

As usual, the debate came handy to Viktor Orbán, who have used social media to criticise his political critics and send a strong message to his followers about staying strong with veto power and his continuous resistance to any serios assistance to Ukraine. The European Parliament did a favour to him once again by politicizing the question: it was immediately re-politicized by him.

Reacting to the arguments of the Commission, that the release was justified because of the legislative efforts of the Hungarian government during 2023 (passing a reform to strengthen judicial independence), in line with the four “super milestones”, those were criticized by many for not being sufficient and that the Commission has not even evaluated those – therefore there is a “manifest error” with the decision that can and should be annulled by the EU Court.

Effects of the case and the judgment?

First question: what will be the judgment? We do not like to predict things, but based on the arguments above, the Court may come to the conclusion that there was a manifest mistake with the decision of the Commission (annulling the decision) or accept its wide margin of discretion in cases like this (leaving the decision in effect), but still in this case, it will introduce a detailed reasoning in the matter, introducing criteria which are currently missing from the applicable pieces of legislation. As indicated above, even the Commission was using the fact of these missing criteria as part of the explanation for unfreezing the funds, and the European Parliament has also identified this as the reason for establishing a manifest mistake of the decision. Knowing the activism of the European Court, it is safe to say that it will run to fill this gaping hole with its interpretation. Which will serve as a precedent, and legal base and guidelines for future situations.

The effect of the Court’s judgment itself is still uncertain. As it is a case for annulment of the relevant decision of the European Commission, in the case of the position of the European Parliament prevailing, the given decision loses its legal effect, practically meaning, that the freezing of the affected funds is restored. What happens then with the funds already accessed by the Hungarian government, especially those that have already been transferred to various economic actors, individuals? Nobody has a clear answer there, but based on the current EU legal practice with obligations of individuals related to or being made relevant by mistakes or failures of member states, it is highly improbable that those funds would be returned. Additionally, this would also send a very bad political message to the EU as a whole, and could lessen the burden on the Hungarian government by possibly creating anger against the EU itself – which I am sure that the Court does not want to do.

The actual and probable obligation coming from that judgment would be a ban on further similar steps by the Commission, additionally, clarifying the currently missing criteria that the Commission should have applied and will have to apply in future similar situations. And there will be similar situations, as this legislative practice and solution expectedly will be applied in future legislation. And that is where we reach a very important point to ask the question: who wins what exactly, even in the case of losing it?

Even if the Commission loses now, the actual judgment is going to contain arguments, interpretations, that will be used in the future not only as base for further legislation but also as legal precedent for future cases. And it is very important to realise: the Commission is losing the case for not being strict enough – at least according to the European Parliament. Now the Commission does not really need encouragement to be stricter in the future, practically it only needs legal base to do so. Which it may get from this case now, even if losing it. That is a very good deal in the eyes of the European Commission on the long term.

By winning the case, the European Parliament can elevate its political profile in the inter-institutional games within the EU, additionally it will get some leverage against the Commission for the future, with the possibility of holding an actual legal obligation against it: enforcing a European Court judgment. By losing, it does not really lose a lot, especially that the positive PR effects of starting the case have already been harvested, as the elections take place in June – who know and who cares, what comes after? Following this logic, it will also not be surprising, if the new Parliament after the elections decides to withdraw the case (as we had seen earlier with the one trying to force the Commission to initiate the so-called conditionality proceeding against Hungary), in case it feels that it goes towards losing in the end. The Parliament’s decisionmakers of today do not have to deal with this problem of tomorrow. The direct political effects of the case are currently evaluated with eyes on the elections in June.

At the end of the day, all relevant institutions and the EU as a whole profit a lot of this judicial case, regardless of its actual result in the end.

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