Mar 13, 2024

The European Union’s Hungary Problem

The Orbán government’s upcoming presidency of the Council of the European Union has sparked criticism. More important, however, is the question of how the EU deals with a member state that breaks away from the principles of the rule of law.

Hungary's Prime Minister Viktor Orban attends the EU summit in Brussels, Friday, March 24, 2023.
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On July 1, 2024, Hungary will take over the rotating presidency of the Council of the European Union. The fact that a country with serious rule of law deficits will preside over one of the EU’s most important institutions for six months raises concerns. In a resolution in June 2023, the European Parliament questioned the extent to which Hungary could “credibly perform this task” and called on the European Council to “find an appropriate solution”—presumably by revoking Hungary’s presidency. (The European Council is the body of the 27 EU leaders; the Council of the European Union, informally also known as “the council,” is composed of the national ministers of all the member states; only the latter negotiates legislature, mostly with the European Parliament, and adopts it.)

However, debates about whether and how the Hungarian council presidency can be prevented are not expedient and distract from larger problems. For although the prospect of a Hungarian EU presidency under the leadership of a government with severe rule of law deficiencies understandably causes headaches, it will do little practical damage. The problem lies elsewhere: in the EU’s lack of a long-term strategy for dealing with Hungary beyond 2024.

While holding the council presidency, the Hungarian government has three main tasks: 

First, it will chair the meetings of the council, organize its work, and set the agenda. This allows it to exert particular influence on which topics receive the most time, space, and resources in the council—and which do not. The General Affairs Council is also responsible for preparing and following up on the content of meetings of the European Council, which brings together the 27 heads of state and government. This allows the Hungarian government to exert at least an indirect, albeit limited, influence on the EU’s top decision-making body.

Second, the holder of the council presidency has the task of acting as a mediator between the member states and forging compromises in the negotiations. This also means that it should act neutrally and impartially in its role as an honest broker between different European interests.

And third, the Council presidency represents the Council of the European Union in its relations with the European Parliament and the European Commission. As part of the legislative process, the presidency negotiates with the other EU institutions on behalf of the council. This is an important prerogative insofar as no other member state is present at the so-called trilogue negotiations and the presidency therefore has considerable leeway in how it conducts the negotiations.

Serving Only Budapest’s Interests?

Regarding Hungary, there is particular concern about the first two roles. It is feared that the Orbán government—even more so than other council presidencies—will only prioritize issues that serve its own interests and will let others fall by the wayside. As holder of the council presidency, it will also lead negotiations on dossiers where conflicts of interest are obvious and a constructive fulfillment of its role as an honest broker will be, at the very least, questionable. Rule of law or migration issues come to mind here, for example.

It also seems likely that Orbán will use the council presidency as a significant stage for himself and his government. Given his other attempts to divide the EU, this poses a problem.

However, this could also have the side effect that Orbán will have an interest in conducting the council presidency in a constructive manner in order to show that his government, despite expectations to the contrary, is capable of doing so.

However, what is more important is to not exaggerate the institutional role that Hungary will play during the Council presidency. Hungary’s time occupying the presidency must be assessed against the background of both its institutional context and the period in which it takes place. 

A Tight Institutional Corset

The Treaty of Lisbon, which came into force in 2009, significantly reduced the powers of the presidency by formally separating the presidency of the European Council and the presidency of the Foreign Affairs Council. Whereas in the past the presidency still encompassed both institutions—and thus also a higher profile and more responsibility—the agenda for the European Council is now set by the president of the European Council, currently Charles Michel. Josep Borrell, as High Representative of the Union for Foreign Affairs and Security Policy, chairs the Foreign Affairs Council, i.e. the configuration that may have the greatest potential for conflict between Hungary and the other member states.

In addition, the council presidency operates within a narrow institutional framework. The council has no right of initiative. In the EU, this lies exclusively with the European Commission. It is also the European Council that sets the EU's general priorities and has the final say on particularly important and politically sensitive issues.

Last but not least, the council presidency is supported in terms of content and administration by the General Secretariat of the Council, which should ensure a certain degree of consistency and continuity. The same applies to the trio presidency, which in the case of Hungary coincides with the previous presidencies of Belgium and Spain.

After the European Elections

Even more importantly, Hungary will take over the council presidency immediately after the European Parliament elections. This will therefore come at a time when EU institutions will be busy distributing posts and, above all, appointing the new European Commission. As a result, little legislative work will be carried out during this period, for which a council presidency is particularly important.

The fact that the first Council presidency after the European Parliament elections traditionally achieves little has been shown in the past. In the second half of 2019, for example, the Finnish presidency only reached agreement in the council on 18 dossiers, compared to around 128 under Austria (second half of 2018) or 130 under France (second half of 2021). So, if there is a period during which the Hungarian presidency can do little damage, this is it.

The Orbán government’s assumption of the council presidency may therefore be viewed critically in principle but, in practice, concerns seem exaggerated; and debates about withdrawing the country’s presidency are not expedient. Not only is such a withdrawal not explicitly provided for and would legally require the activation of the required procedure under Article 7. There is also little interest among other member states in pursuing such a course of action. After all, withdrawing the council presidency from another government would mean changing the rules of the game with an uncertain outcome and creating a precedent that could be detrimental to oneself in the future. Moreover, this distracts from a bigger problem, namely the question of how to deal with a country in the European Union that no longer wishes to abide by the rules of the game agreed at the outset.

Violations, Penalties, and Blockades

The EU does have a problem with Hungary. Within the country, democracy, human rights, and the rule of law are under increasing pressure. In terms of European policy, Viktor Orbán is making obvious attempts to blackmail EU institutions and other member states at ever shorter intervals. The conflict between Budapest and Brussels is not new. However, it has come to a head in recent years.

The European Union has responded to the ongoing violations of rule of law principles in Hungary with an array of instruments and procedures. For example, the European Commission has repeatedly initiated infringement proceedings against the country in recent years. In September 2018, the European Parliament activated the Treaty of Europe’s Article 7 procedure, according to which member states in serious and persistent breach of the values set out in Article 2 of the TEU can be deprived of certain rights arising from their EU membership, including the right to vote in the council. The procedure has since been blocked in the council.

In addition, Hungary has had a total of over €30 billion in EU funds frozen over the past three years due to serious rule of law deficits. Hungary is the first and, so far, only member state against which the EU’s new conditionality mechanism has been applied. This affected just over €6 billion in cohesion funds. Almost simultaneously, the European Commission also imposed a freeze on the remaining funds from Hungary’s cohesion funds due to non-compliance with the EU Charter of Fundamental Rights, which must be taken into account when implementing EU funds due to the so-called horizontal empowerment condition, of which the EU only released around €10 billion again in December 2023 (in a historic step, the European Parliament on March 12 signaled it will be taking the European Commission to court over this decision). In addition, almost all of the funds from the EU Recovery and Resilience Facility, which total over €10 billion in loans and grants, are still outstanding.

Prime Minister Orbán has repeatedly reacted by blocking important decisions by the EU and its member states. Most recently, Hungary blocked the reform of EU migration policy and Sweden’s accession to NATO, even following ratification by Turkey and only approved the country’s membership in early March. There was a further escalation at the summit of EU heads of state and government in December 2023, when Orbán left the room to allow the opening of accession negotiations with Ukraine and Moldova, but vetoed the urgently needed €50 billion EU aid package for Ukraine. An agreement on the latter could only be reached at a special summit convened for this purpose on February 1.

The blockades are often not about defending national interests in Brussels. Rather, it seems the veto is used, not only but above all, as a means of exerting pressure for other purposes, for example to get the European Commission and the other member states to release the funds blocked due to the rule of law.

This is a problem for the EU in several respects. The Orbán government is significantly restricting the EU’s ability to act politically through its blockades. Admittedly, an agreement has always been reached in the European Council in the end. But this always comes late and often at a price.

A Challenge to Europe’s Consensus

This leads to another problem. If the price consists of unblocking the EU funds that have been frozen for Hungary, the impression may arise that the EU is prepared to repeatedly make concessions in the enforcement of rule of law principles—as happened at the aforementioned summit in December 2023. This has an impact both on the credibility of the EU to enforce its own rule of law principles and on the willingness of other member states to make a financial commitment to the EU.

But above all, it poses a fundamental question for the European Union: How can and should it deal with a member state that has been rejecting the principles of the rule of law for over a decade, and thus also the basic consensus of the EU?

The European Union has no long-term strategy on how to deal with a member state like Hungary. This is also due to its nature: The EU treaties were drafted at a time when no one thought that the TEU’s Article 7 would ever have to be applied. There is no possibility of excluding member states against their will. Budgetary conditionality is also a recently introduced instrument that serves first and foremost to protect the EU budget and not to punish breaches of the rule of law.

Economic and Political Pressure

There is no miracle cure for reticent governments in the EU. However, recent experience in negotiations with Hungary in particular shows that the EU can still assert its interests in the coming months with a combination of economic pressure and political unity.

The amount of EU funds that have been blocked for Hungary is certainly relevant in macroeconomic terms, particularly in light of Hungary’s economic situation. The more a member state is dependent on EU funds, the greater the pressure the EU can exert through its rule of law instruments. In the case of Hungary, according to the current status of the proceedings, the country will lack an average of almost €9 billion in EU funds in its national budget between 2024 and 2026. This corresponds to almost 5 percent of Hungary’s gross domestic product in 2023.

That is a lot of money, especially considering that it is currently expensive for the Hungarian government to compensate for the lack of EU funds by borrowing additional funds on the financial markets. Interest rates for 10-year Hungarian government bonds stood at 6.16 percent in December 2023, the highest in the EU alongside Romania and well above the eurozone average (2.9 percent).

It is important to mention that the blocking of EU funds is only possible under strict conditions. The EU’s rule of law instruments cannot be used arbitrarily. But that does not make them any less effective.

The Hungarian government is also coming under increasing political pressure within the EU. The other member states are becoming less and less adverse to European solutions with 26 in favor rather than of 27. And with the change of government in Poland last year, Orbán lost an important ally in the European Council. The new Polish prime minister Donald Tusk, a former president of the European Council, is a clear critic of his Hungarian counterpart. This makes the initiation of Article 7 proceedings against Hungary still unlikely, but at least theoretically possible again.

This gives the EU important political leverage. Even more so if the council were to activate the first step of the article with a four-fifths majority and determine that there is a clear risk of a serious breach by a member state of the values set out in Article 2. A withdrawal of voting rights from Hungary would then be just one vote away, even if the Slovakian prime minister Robert Fico could emerge as a potential new ally of Orbán.

At the same time, the political impediment within the European Council to sanctioning another member state remains high, despite frustration with Budapest having increased significantly in the other capitals. After all, they do not want to pillory other EU heads of state, because they do not want to risk being pilloried themselves in the future.

A Three-pronged Strategy

The EU’s instruments, whether formal or informal, will not bring about a systemic change in Hungary. However, they can contribute to at least slowing down the country’s further turning into an autocracy and reduce the endless blockades at the European level.

In the long term, this requires a three-pronged strategy: First, the EU should make effective use of its rule of law instruments and consistently punish violations of the rule of law regardless of the political context. Second, the other heads of state and government should continue to show unity in dealing with Hungary and, where possible, find alternative solutions without it. After all, the February summit showed that only those can be blackmailed who allow themselves to be blackmailed—and 26 member states are stronger than a Hungarian prime minister. Third, the institutional conditions for the EU’s capacity to be blackmailed must be removed in the long term by reforming its decision-making procedures and reducing the veto options.

Thu Nguyen is Deputy Director of the Jacques Delors Center in Berlin. 

The IPQ Spring 2024 issue, out on March 25, will be focusing on the upcoming European election and the EU’s future.