Brussels’ suspension of payments for most of Hungary’s cohesion projects

It was on May 1 that I first reported that 444.hu, a new Internet website, published an article according to which sometime during the summer of 2012 the European Union suspended payment for cohesion fund projects. The apparent reason was that Brussels discovered that there was discrimination against foreign engineers. Only engineers who belong to the Hungarian Society of Engineers could be hired.

I expressed my doubt that the only reason for the suspension of billions of euros was discrimination against foreign engineers, although I do know that such discrimination within the EU is strictly forbidden. I suspected that Ferenc Gyurcsány’s Demokratikus Koalíció, which had brought Lajos Simicska’s Közgép to the attention of the European Anti-Fraud Office (OLAF) , might have had something to do with the suspension of funds.

At that time the government offered only a couple of soothing assurances that all was well. One government official even insisted that the requisite membership in the Hungarian Society of Engineers was not really discriminatory because, after all, foreign engineers could join the society. The Hungarian government seemed to be quite sure of itself.

By now, however, the Orbán government seems to be in a total panic. There is still no resolution of the European Union’s suspension of payments for 13 of the 15 operative programs financed from Brussels, and in the worst case scenario Hungary might lose somewhere between two and four billion euros in EU grant money.

Let’s look at a few of the details. I should note here that I feel sorry for those journalists who don’t speak Hungarian and have to rely on information that is available on government sites because very often the English version of the press releases bears no resemblance even to the government doctored news in Hungarian. The August 12 press release on “Action plan to avoid losing EU funds” is a good example of this practice because it says not a word about the suspended funds. The Hungarian version published on the Office of the Prime Minister’s site is more informative.  János Lázár, the new head of the Nemzeti Fejlesztési Felügyelet (NFÜ, National Development Agency), announced at his press conference that “the European Union raised concerns with several large development programmes” and that  Lázár “has already asked European Commissioner for Regional Policy Johannes Hahn to assure completion of related negotiations at the earliest opportunity so that Hungary may utilise the maximum amount of funds available within the 2007-2013 programming period.” This, however, is still not the whole truth.

Lázár actually said that of the 20 billion euros allocated to Hungary for 2007 through 2013 there is a good possibility of losing about 2 billion euros if no agreement is reached before the end of the year. He didn’t dwell on the reasons for the suspension of funds but showed himself eager to “close the disputes between Hungary and the European Union.” The Hungarian government is ready to pay the fines that will most likely be forthcoming without turning to the European Court of Justice because of the urgency. He indicated that he would be happy if Hungary had to pay only 50-70 billion Hungarian forints.

János Lázár at his press conference / Photo Károly Árvai

János Lázár at his press conference / Photo Károly Árvai

This withholding of funds is only one of the problems. The other is that Hungary has only a few more months to utilize the remaining grant money, about 1 billion euros, that until now has not been allocated.

What happened? In 2010 the Orbán government completely reorganized NFÜ, which entailed firing 170 of the 210 employees of the agency. Brussels was apparently stunned. They may also have considered Viktor Orbán’s “reorganization” illegal because the Hungarian government was supposed to ask approval of these changes from the European Union. Because of the reorganization there was practically no work on projects at the agency. And not a single new project was launched. I might add here that today NFÜ has 600 employees and, as Lázár made clear at his press conference, there is no plan to reduce the size of the staff.

Meanwhile, just as I suspected back in May, concern was raised in Brussels over the alleged widespread corruption in the dispersion of funds, currently being investigated by the police. Most of the corruption that is under investigation happened when the Hungarian government tried to allocate money to small- and medium-size Hungarian businesses. Then there was the case when NFÜ wanted to decide the winner by lottery, which Brussels gravely objected to and eventually managed to stop. Sometimes grants were handed out without open competition. It is also known that there were occasions when firms with close ties to Fidesz offered assistance (naturally for a fee) to smaller companies without political connections. As far as I know, Közgép, the largest recipient of EU funds and according to some the most tainted, is not under investigation.

The question of the operative project funds was discussed yesterday at the cabinet meeting. As usual, not much can be learned from the press release except that the decision was made to create a new “working group” within NFÜ called “Tervezési Támogatási Munkaszervezet” (Planning and Assisting Working Organization) which is supposed have “functions of direction within the organization units.” Whatever that means.

According to MSZP’s Gábor Harangozó, although Lázár talked about 2 billion euros (500-600 billion forints) that needs to be approved by the European Commission and spent this year, in his opinion the real figure might be as high as 1,500-1,200 billion forints or about 4 billion euros. Right now no money is coming from Brussels, not even for projects that are already under construction. Moreover, it seems that the Hungarian government, which is supposed to be the guarantor of EU subsidies, doesn’t have the resources to pay the companies that are working on these projects.

Harangozó inquired in writing from Viktor Orbán about key details of the case. For example, how long has the Hungarian government known about the European Union’s objections to the government’s handling of the grants? When did Brussels turn off the spigot? Did the European Union complain about government corruption? MSZP also inquired about the situation from the director-general of the European Council.

Today the government, obviously feeling the pinch, reacted to Harangozó’s statements. They countered that Hungary “has lost billions of euros due only to the incompetence of the Gyurcsány-Bajnai governments.” According to the government press release, during Gordon Bajnai’s tenure as the head of NFÜ “76% of the money for development that was spent was not in accordance with rules and regulations.” In any case, one of the first announcements of Lázár after the cabinet meeting yesterday was that the Orbán government will re-examine all projects, including those long since finished, beginning with 2007.

In brief, a new attack on Ferenc Gyurcsány and Gordon Bajnai is in the offing. If they follow their usual pattern they will darkly hint at all sorts of irregularities, fraud, and corruption. Then the police and the prosecutors will madly search for evidence while Magyar Nemzet reports on lurid details of the investigation that they gleaned from reliable sources. The whole circus will last at least until the elections. A tried and true campaign strategy.

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29 comments

  1. In brief, a new attack on Ferenc Gyurcsány and Gordon Bajnai is in the offing. If they follow their usual pattern they will darkly hint at all sorts of irregularities, fraud, and corruption. Then the police and the prosecutors will madly search for evidence while Magyar Nemzet reports on lurid details of the investigation that they gleaned from reliable sources. The whole circus will last at least until the elections. A tried and true campaign strategy.

    Yes it would be, but it does not result in solving the urgent money problem for Fidesz. I hope the EU, and they probably will, follow just the rules and regulations.

    Btw I like the VO comment we are willing to accept a penalty. Unfortunately, in most EU people do not work with penalties, but how to prevent it in the future and to co-operate without a penalty.

  2. Maybe we, along with the Orbanistas, have underestimated the EUcracy’s cunning.

    The fascists are planning a massive “Hungary not for sale” demo for the 20th holiday period on Felvonulasi ter. The ever vigilant and worldwide Jewish conspirators have (apparently) linked in with the EU-backed banks to deprive the Magyar Motherland of its deserved destiny.
    Brussels (obviously) is quietly waiting with its rubber stamp to signify the death of Hungarian independence.

    Once again the “freeman or slave” stickers last seen before the EU referendum in 2003, have started popping up in the least expected spaces (eg all over the agricultural ministery- covering the one element of Orbanistan that most needs EU fund to survive)

    It would be nice to think the left/liberal democratic opposition have the same nous as the far-right to take advantage of the regime’s present weakness….
    More like rabbits caught in the lights of very fast approaching juggernaut.

  3. All right, but why did the EU stop the payments on 13 out of 15 projects, and not all of them? Well, I found that out today. Of the 15 projects one is the NFÜ office itself, that cannot be shut down, because then there is nobody to talk to about the anomalies. The other project is one that has allocated and paid out all monies already, as Mrs. Nemeth, Minister of Development admitted in a letter to an MP’s inquiry. There is nothing left to stop.

  4. Thank you. Sándor. Yes, I know that this is the case. So, basically there is no money coming. Now we will see what Herr Hahn will do. Will Lázár manage to convince him that all is in order? I hope not. Orbán’s government shouldn’t be financed by the European Union. It might sound harsh but this is how I feel.

  5. Sandor :
    All right, but why did the EU stop the payments on 13 out of 15 projects, and not all of them? Well, I found that out today. Of the 15 projects one is the NFÜ office itself, that cannot be shut down, because then there is nobody to talk to about the anomalies. The other project is one that has allocated and paid out all monies already, as Mrs. Nemeth, Minister of Development admitted in a letter to an MP’s inquiry. There is nothing left to stop.

    What a shame!
    Poor boys at the Fidesz have to face a hindrance now, bare inches from the goal..!
    All the hard work to be able to get all the monies of the most hated EU in wain..?

    It’s an unfair blow, you know, now, when they could grab some really decent dough before the election may turn sour, all in jeopardy!
    Think about it, when they will eventually realise it, that they screwed over themselves being only greedy with zero experience, how to play in the major league with the really big boys!
    Of course, now we will hear the gyurcsány-bajnai conspiracist mantra endlessly

    But seriously, the inadequacy simply staggering.

  6. Now folks, keep your ear to the ground…can you not hear the heroic Hungarian hordes coming, riding, to save the beloved country from the hooked nose Europeans desiring to enslave the Turul land?
    “We spit on that EU money! We will not be bought! Our freedom and dignity is not for sale! Hajra Viktor!!”

    Yes! the argument will run, Hungary does not need the blackmailing EU–“Let us escape from them!”

    Soon to come to your neighborhood reality: the Pava dance out of the EU….

  7. Dear Prof. Balogh, you see it very clearly. Any problem with the EU will be the sole result of Gyurcsány’s and Bajnai’s activities.

    The prosecutors, the personnel of which has been thoroughly reorganized in the “more important” departments in the last three years by the way, will investigate their treacherous misdeeds. The media, 90% already owned by Fidesz, will work onto it (I love the Hungarian word “rádolgozik”, that’s how at Magyar Nemzet call their activities re the prosecution).

    Simple as that. The government or Fidesz or Mr. Lázár cannot lose any popularity in this game. The EU has no idea what is going on.

  8. The regime may not lose any popularity (although I realy do think Jobbik, if not the left, will make hay with this) but they do also need the money badly to keep Orban’s business mafia happy and the general economy ticking over. Allegations that the money has not stopped due to corruption have come from our old favourite “anonymous sources” and cannot, logically, thus be verified.

    The EU has kept very quiet generally on this, so the question is why the Orban Clique has decided to go public slam bang in the middle of the uborka season. Cover for the fact the teachers won’t get their promised pay rise in September?

  9. A bit OT:

    We saw Lázár several times on “North Korean State TV news” aka M1, also talking about Csany the “Usurer No 1”.

    This guy looks really crazy to me, the way he moves and speaks – I wouldn’t trust him one millimeter.

    Anyone here can explain him and/or do you feel the same ?

  10. Very interesting post. One should add that, back in April there were reports on how 350 billion forint had been paid to EU projects in Hungary which had offshore owners. Some of these projects have been managed by Fidesz and MSzP MPs…

    http://atlatszo.blog.hu/2013/04/15/egy_csesze_offshore_kave_unios_tamogatassal

    Indeed, at that time both Fidesz and MSzP jointly rejected the setting up of an investigation committee, which would have looked into irregularities of the 2007-2017 EU funds utilisation.

    http://hvg.hu/itthon/20130422_Nagykoalicioban_soport_le_a_Fidesz_es_az

    And now, three months later, Lázár proudly announces that he does want to check all these projects. How times change…

  11. “– Ha jól értem, a teljes 40 százalékot pályáztatás nélkül kívánják felhasználni?
    – Valószínűleg igen.”

    – If I [journalist] understand it right, you plan to distribute 40% of the [EU] money without public bidding?
    – Probably yes.

    (Orban & Lazar want to decide personally who will get this 40% of the EU money, I [tappanch] gather from the interview)

  12. It is interesting how the consensus about an increase in corruption is forming.

    And not just from abroad. Yesterday GKI announced the result of their periodic research: an increase in public perception of corruption since 2010 consistently across the whole of society. Naturally it was reported diplomatically by some as a “weak” increase!

  13. Wolfi: Lazar is Orban’s current heir apparent. Even if this term is an oxymoron, for Orban by definition cannot have an heir, as he occupies the symbolic position of the eternal leader [and in fact many people suspect that his first born child Rachel is groomed to be the eventual successor, who will appear to be as such in due course.]

    But for the moment, Lazar is by far the most powerful and influential of the generation that came after the Bibo-College fraternity generation, and in fact many from that fraternity fear him. His ambitions know no bounds, the question is will he pop under the stress? That is a big question. I agree he is a bit crazy (probably manic and very tired), but is this an issue in politics?

    I personally don’t think that he is wise enough ever to be Orbán’s successor (lead that giant power conglomerate that is Fidesz), but in any case, he is one of the ‘best’ Hungary can offer currently.

  14. @ SumitRoy:
    “….he is one of the ‘best’ Hungary can offer currently.”

    No, he is not: Antal Rogan is. But, he’s a bit of a ferret of little physical stature. Still, more intelligent, hence, more dangerous, than Lazar. Lazar
    is crazy, though. It’s that erratic-ness that Viktor must like, I suppose.

  15. So it seems, there was an EU audit in 2012 on the management of ESF/ERDF/CF funds by Hungary. The report is nowhere to be found. So it seems, a decision was made to suspend almost all payments – not commitments – by an unspecified authority at an unspecified date. “There are currently no indications of corruption or fraud, but rather this is a systemic problem relating to the controls not working properly”, according to an “EU official”… who declined to be named (Reuters yesterday).

    The opacity on this subject never ceases to amaze me. In my opinion it’s another example of bad European governance, especially as jobs are probably at stake. Moreover, it offered the HU govt the possibility to shoot first.

    Yet, the fact that Lázár didn’t try to spin the whole thing by exploiting this weakness hints at the EC having serious ammunition.

    I guess the developments will be highly interesting!

  16. @SumitRoy: :But for the moment, Lazar is by far the most powerful and influential of the generation that came after the Bibo-College fraternity generation, and in fact many from that fraternity fear him”.

    Orban and Lazar probably found each other because they have a lot in common. The same hunger for power, the same feelings of entitlement, the same arrogance and aggressiveness. Lazar seems to be Orban in a younger edition. Not good news. I think Lazar would be ready to take over if something happened to the dear leader. Would he be as successful as him? Who knows, we may have the chance to see that one day.

  17. Marcel Dé: The opacity on this subject never ceases to amaze me.

    What do you mean? Are you talking about the bureaucratic part or the political part?

    What we see now is the bureaucratic part of the EU, not the political part (you will see that on August 28). Actually OLAF was until recently a “monster” without teeth. It was run by lawyers!

    The last few years auditors were added to OLAF, and one of the main topics they are auditing is the obligation resulting from Treaty on the Functioning of the European Union. http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:C:2010:083:0047:0200:en:PDF

    Especially Article 325 is very important. As a result every year OLAF is required to prepare a Report Fight Against Fraud. http://ec.europa.eu/anti_fraud/documents/reports-commission/2012/pif_report_2012_en.pdf

    OLAF usually work together with the local State Audit Firm, but I am not certain if this is happening recently. I cannot find on the ASZ.hu website EU related reports. Or other reports relating to the Cohesion Funds.

  18. Check out Laser Johnny’s stubbly face! What is this mountain man look? The mandatory Fidesz macho image?

    His was nicknamed Laser Johnny after his 20 million Audi A8, courtesy of the Hungarian taxpayers, that had an illegal radar detector on it.

    This was at the same time when he said his famous wisdom “Your net worth is your real worth” (“mindenki annyit ér, amije van”).

  19. Mutt :
    Check out Laser Johnny’s stubbly face! What is this mountain man look? The mandatory Fidesz macho image?
    His was nicknamed Laser Johnny after his 20 million Audi A8, courtesy of the Hungarian taxpayers, that had an illegal radar detector on it.
    This was at the same time when he said his famous wisdom “Your net worth is your real worth” (“mindenki annyit ér, amije van”).

    And then he was in a car. That car was in a accident killing a woman on the M5. I believe this is a State Secret now.

  20. @Ron: political. Somebody decided to suspend payments (EC? Council?), which has an effect on the foreseeable economic future of numerous contractors – who may not all be Fidesz protégés, as like you I assume the scope is pretty large. The public weren’t notified, and that includes the European Parliament and taxpayers throughout the EU.

    I’m not trying to switch the blame as I too assume something fishy has been going on for three years with both the NFU and the Hungarian auditing committee. However, not playing this in the open is bad governance. As EU citizens we’re in the same boat, there’s an EU election next year, and all Western anti-European political parties were already having a field day about cohesion funds to Central and Southern Europe.

  21. Thanks Ron. The thought of any further delays to the Debrecen tram upgrade is almost beyond parody! I’ve actually lost track of how long it’s taken to build the extension, but it’s at least 4 years – and it’s still far from complete. And there are currently no trams running at all! They were suspended while the terminus layout was changed, but they should have been running again two weeks ago. All we’ve got is one of the new sets running back and forth full of sandbags!

    The joke here was that they’d get the trams back just in time for them to be suspended again for the 20th. But it turned out not to be a joke.

  22. Marcel Dé: It is suspension, and this suspension is temporary, although it may become permanent later. I believe it is a bureaucratic decision by some one doing his/her job. The decision to make it permanent is a political one.

    And I agree a lot of contractors may go down, but they may have go down anyhow they way governmental institutions and private developers constantly refuse to pay sub-contractors, example Megyeri Bridge.

    These guys are sitting ducks anyhow, no protection whatsoever.

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