EU Rings Alarm Over Hungary’s Plan for $4 Billion of Virus Cash

(Bloomberg) -- Hungary’s plan to channel as much as $4 billion of European Union stimulus money to university boards run by Prime Minister Viktor Orban’s allies is causing concern at the European Commission, which must approve use of the funds and can petition to withhold disbursements.

Hungary, like most countries, hasn’t yet submitted its plan for how it intends to use its share of the EU’s 800 billion-euro ($966 million) recovery package, but its proposal needs more work to get approval, according to three officials familiar with the matter. Budapest’s intention to use funds to overhaul the country’s universities needs particular scrutiny, said one of the officials, who asked not to be identified because the process is private.

The EU is under pressure to make sure funds from its recovery package, which will pool debt among its 27 members and disburse proceeds to those most needy, don’t fall prey to corruption or fraud but help reform the bloc’s economy to support a digital and green transition. Money is expected to start flowing this summer and Hungary’s draft proposal called for 21% of its $19 billion allocation of grants and loans to “renew universities.”

“We will of course be very vigilant in ensuring that the plans serve the purpose of making Europe fit for the future,” Eric Mamer, the commission’s chief spokesman, told reporters on Wednesday. “We have a very powerful tool which is the fact that it will be for the commission to recommend” adoption of the plan. When asked about the specifics of Hungary’s plan, Mamer declined to comment.

State Assets

The scrutiny comes as Orban’s lawmakers this week transferred a vast array of state assets to new, quasi-private foundations, a majority of which will run state universities. Their boards will be controlled by the prime minister’s allies, including members of his government, who can have lifelong terms.

Some opposition members decried the move as the misappropriation of public funds while others said it would create a deep state entrenching Orban’s influence independent of election outcomes.

The EU will vet Hungary’s proposal at a time when it’s under pressure to crack down on corruption. In December, member states agreed on a new mechanism that will allow the commission to withhold funds from countries where the EU’s financial interests are deemed at risk.

Read more: Hungary to Move Billions in Funds in Step Decried as ‘Theft’

A dozen European Parliament members on Monday urged Commission President Ursula von der Leyen to block the funding to university foundations, saying the outlays would be shielded from public scrutiny, according to a copy of the letter seen by Bloomberg.

The lawmakers, including Green Party member Gwendoline Delbos-Corfield, wrote that the money would “disappear in opaque funding structures which are exempt from budgetary control standards and which have the purpose of further destroying academic freedom and institutional autonomy in Hungary.”

National Reforms

Hungary’s proposals are not alone in requiring more work before funding can be signed off. EU governments are currently in the process of submitting their recovery plans to Brussels for approval, with EU officials expecting about a dozen of them to arrive this week ahead of an April 30 deadline.

The bulk of the bloc’s remaining member nations are expected to submit their plans in the coming weeks, kicking off the formal process of assessing whether their proposed reforms and investments meet the criteria to qualify for EU funds.

Like all member states, Hungary will be asked about its plans to implement country specific recommendations made by the commission, according to one of the officials. In Budapest’s case that includes addressing the lack of competition in public procurement. In making those recommendations, the commission has also raised concerns about corruption, access to public information and media freedom.

Under Orban’s rule since 2010, Hungary has plunged in Transparency International’s annual corruption perceptions index and is currently tied with Bulgaria and Romania as the nation with the biggest graft challenge in the EU. The watchdog said cronyism was a “key feature” of the government. Hungary, along with Poland, are the only EU members currently subject to the bloc’s rule-of-law probe.

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