Brussels has put on hold some EU funding to Hungary after it found alleged irregularities in the way development subsidies have been managed by Budapest.
“The European Commission can confirm that it has temporarily put on hold certain payments to Hungary from EU structural funds . . . due to significant deficiencies identified by commission audits in the management and control systems of eight operational programmes,” said Jonathan Todd, a commission spokesman.
Mr Todd added that the precise sums withheld would depend on the outcome of talks between the commission and the Hungarian authorities, indicating that a meeting was likely to take place this month.
While Hungary is desperate for EU money to finance much-needed investment projects, the moves are yet another sign of the troubled relationship between Brussels and the Fidesz government of Viktor Orbán, prime minister, which took office in 2010.
Janos Lazar, head of the prime minister’s office in Budapest and recently given responsibility for utilisation of EU funds, said Hungary risked losing up to 600bn forint (€2bn) in EU funding this year due to shortcomings over controls.
“At the moment, the EU is not financing 13 out of the 15 programmes managed by the National Development Agency . . . as it has problems with 13 programmes,” Reuters news agency quoted Mr Lazar as telling reporters.
Hungary risked losing considerable funding from ongoing programmes if the government failed to take serious action, he said, indicating that he hoped negotiations could be concluded with Brussels by mid-September.
Mr Todd, however, said that the penalty Hungary faced was a fraction of the €2bn mentioned by Mr Lazar.
Attila Mesterhazy, leader of the Socialist opposition, said the suspension “demonstrates the incompetence” of the Orbán government.
“We have repeatedly said that the EU projects seemingly have stopped with no signs of recovery at all. Instead of his ‘freedom fights’ over the last three years, Mr Orbán should have concentrated on making successful bids for EU-funded programmes,” Mr Mesterhazy told the Financial Times.
He also said that Kozgep, a construction company with close ties to the governing elite, had won an excessive number of EU-funded project tenders.
Hungary is not unique in seeing funds suspended. Romania and the Czech Republic have faced similar EU action recently, noted Otilia Dhand, vice-president of Teneo Intelligence, a US political risk consultancy.
However, she added, the problem in Hungary had been allowed to build up over time. “There have been troubles with some Hungarian programmes since at least 2011. The majority of the payments in question have been on hold since late 2012,” she said.
With the deadline for allocating new funds and next year’s elections drawing near, the government is trying to get things in order.
“EU funds are Orban’s only hope to hold as many groundbreaking ceremonies ahead of the 2014 elections as possible,” said Ms Dhand. “It was Lazar’s debut press conference in his new position on Monday that sparked the story, rather than any sudden move of the EC against Hungary.”