The European Court ruled against Hungary and Poland

HUNGARY - In Brief 16 Feb 2022 by Istvan Racz

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This is unsurprising but highly consequential.Hungary and Poland asked the European Court last year to scrap the EU's new rule-of-law fiscal mechanism by declaring that it is not in conformity with existing EU law. However, the Court refused to do so, saying this morning that the mechanism is legal, and so the EU can block on its basis access to EU funds for those member governments which cannot guarantee that the funds would be used in a regular way. This is especially the case if a member government's efforts to fight corruption are insufficient, and if the local judicial system works under undue government influence.In practice, this means that rule-of-law procedures against member states, especially against Hungary and Poland, the usual suspects, can be started. These procedures can last 6-9 months and end with a decision to block access to those EU funds that are distributed by the government, i.e. the big majority of all EU transfers. However, until decision is reached, the EU Commission is likely to (continue to) hold back its approval on Hungary's RRF programs (about HUF2100 or 3.5% of annual GDP in total) and it may also block progress on the approval of the country's programs under the upcoming 7-year EU budget (the one for 2021-2027). The latter equals to about 15% of current annual GDP (1.8% of GDP for each of the 7-year budget period).Please, note that none of the RRF funds have been budgeted by Hungary for this year, whereas the government budget expects revenues of HUF800bn plus (1.3-1.4% of GDP) from the new 7-year EU budget.