Hungary's parliament convenes for autumn session, in Budapest
Hungarian Prime Minister Viktor Orban attends the autumn session of parliament in Budapest, Hungary, September 26, 2022. Reuters

The European Union's executive is due to come up with a new assessment on Friday of the state of democracy in Hungary to help the bloc's 26 other member states decide on whether to grant Budapest billions of euros worth of funds.

Trying to unlock access to the money, Hungary's nationalist Prime Minister Viktor Orban is facing one of the greatest challenges of his 12-year rule as domestic inflation is seen climbing to 26% this month, the cost of state debt has shot up and the economy is expected to slow sharply next year.

At stake is 13.3 billion euros ($14.1 billion) that had been earmarked from the EU's joint coffers for Hungary but blocked over worries around corruption and a lack of judicial independence in the country of nearly 10 million people.

The European Commission is due to communicate its position to the Czech Republic, current holder of the EU's rotating presidency, in a letter later on Friday, two officials said.

Hungarian Justice Minister Judit Varga said this week that parliament had approved more laws to address the graft concerns since the Commission concluded its last assessment in November.

"We will continue to work to ensure that the Hungarian people receive even the last penny of the resources they deserve," she said on Facebook.


International watchdogs say Orban has long channelled EU funds to associates to entrench himself in power. Orban says Hungary is no more corrupt than others.

The self-styled "illiberal" crusader has had many bitter fights with the EU over media and academic freedoms, the treatment of migrants and LGBT rights.

With Hungary highly reliant on Russian oil and gas, he has cultivated close ties with Moscow and repeatedly stalled EU sanctions against Russia over the war in Ukraine.

But with Hungary's forint currency down 11% versus the euro this year, Orban has sought to strike a deal with the Commission, with the creation of an anti-graft agency among changes made to unlock the sorely needed EU funds.

The Commission had earlier recommended freezing 7.5 billion euros, or 65% of development funds assigned to Hungary from the EU budget until the end of 2027, citing corruption risks.

But the other member states - locked in a tug-of war with Hungary that also sabotaged an 18 million euro loan to Ukraine and a proposal for a global minimum corporate tax - pushed the Brussels to take another look.

The Commission has also been withholding its approval of some 5.8 billion euros for Hungary from an EU fund set up to help countries recover from the COVID pandemic.

Sources told Reuters that EU countries would seize on Hungary's latest legal changes to conditionally approve Budapest's spending plan for the 5.8 billion euros, while lowering from 7.5 billion the amount of funds still frozen.

An end-of-year deadline to decide on both pots of money increases the pressure on both sides as they seek to wring concessions from each other.

Consultancy Eurasia Group said it believed Hungary "will reach a deal with the EU" this year.

"However, the risk of a breakdown in talks is growing, as Brussels and EU capitals are inclined to show... Orban the bloc will not be blackmailed," it said.

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