A further bit of a problem with EU transfers

HUNGARY - In Brief 26 Sep 2018 by Istvan Racz

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We have written a lot about the prospective problems with Hungary's access to EU transfers in the next medium-term budget period, i.e. between 2021-2027. However, it seems now that access to part of the country's EUR25bn EU development transfer quota, set for the current seven-year budget period is also at serious risk.It has been long known that the EU Commission is not satisfied with the way how EU transfers were distributed locally between 2015-2017, and that this matter has been the subject of an ongoing investigation. But most recently, a government report leaked to the press suggested that the EU Commission was in fact proposing to freeze 10% of the EU contribution to all projects, which form the basis of its investigation. According to a rough estimate, the penalty would reach about HUF 380-390bn or 0.9-1% of annual GDP.The consequences of this, so far officially unconfirmed, conclusion will depend on what way the Hungarian government will choose going forward. Should it accept the EU proposal to pay this much of penalty, its ability to spend on development out of EU funds would fall by the amount mentioned above between now and 2023. This does not look like a lot, but in case the government is indeed planning to spend all its quota by end-2019, then the whole burden would fall on the rest of 2018 and next year.Should the government refuse to pay this lump sum penalty and ask for a more detailed investigation, the fiscal burden could be distributed to several years. However, in that case the risk would be that the penalty gets eventually bigger, and it could also delay the reimbursement of a large amount of Hungary's transfer claims on the EU. The latter could p...