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GS Sees Hungary Compromising Further For EU Funds Agreement

HUNGARY
  • On Sunday the European Commission announced that it recommends a partial suspension of the EU funds disbursement for Hungary over rule-of-law concerns. This marks another step in the ongoing dispute between Hungary and the EU, but the implications of the latest step are more procedural than substantive.
  • At this point, the assessment is made at a technical/bureaucratic level, whereas the final decision whether to ultimately suspend the funds will be made by heads of state at the EU Council, based on a qualified majority vote (excluding Hungary).
  • The primary concerns for the EC are over corruption and the oversight of how the EU funds are used. The EC acknowledged that Hungary has made some progress in addressing its concerns, but that it retains reservations, essentially passing the final decision to the EU Council (where a political compromise will be possible, encompassing broader issues such as Hungary’s support for the global minimum corporate tax rate and the renewal of EU sanctions on Russia).
  • In GS view, given the fragility of Hungary’s balance of payments position and the importance of these inflows, resolving the dispute with the EU is a necessary but not a sufficient condition for maintaining Hungary’s fiscal, BoP and exchange rate stability.
  • The EU holds has a significantly stronger negotiation position than Hungary and is likely to drive a hard bargain.
  • Nevertheless, given the importance of EU inflows to Hungary’s macro stability, GS continues to expect it to compromise further to achieve a deal.
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