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

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.

Viktor Orbán’s answer to the Tavares report

As soon as the vote in the European Parliament went against the Hungarian government, Viktor Orbán announced that a resolution will be introduced for the Hungarian parliament to adopt that will condemn the Tavares report.

And indeed, by this afternoon the proposed text of the resolution was already on László Kövér’s desk. The bill is signed by three Fidesz members of parliament: Antal Rogán, the leader of the Fidesz caucus, Gergely Gulyás, one of his deputies and the alleged constitutional expert of the party, and Máté Kocsis, mayor of District VIII and a very active young member of parliament.

This afternoon I heard an interview with Gergely Gulyás, in the course of which he was asked whether the idea for the resolution came from Viktor Orbán. Gulyás, who is one of the few Fidesz politicians for whom lying doesn’t come easily, paused. It was a very long pause. Eventually he found the right words: the prime minister can certainly identify with it.

What we must keep in mind is that the resolution comes from Fidesz the party and, as you will see, is at  least in part addressed to the government. So, strictly speaking, Viktor Orbán, the party chief, is asking Viktor Orbán, the prime minister, to do certain things.

Decree of Parliament on the equal treatment due to Hungary

1. We Hungarians entered into the family of European nations by establishing a state and adopting Christianity.

We Hungarians often stood up for European values. There were times when we defended these values with our blood against attacks from outside. In 1956 we armed ourselves against the communist dictatorship. In 1989 we contributed to unifying Europe with the demolition of the iron curtain.

We Hungarians entered into the European Union of our own free will.

We did that in the hope that we would join a community based on law, justice, and freedom.

We Hungarians  do not want a Europe where freedom is limited and not widened. We do not want a Europe where the larger ones abuse their power, where national sovereignty is violated, and where the smaller have to honor the larger. 

We have had enough of dictatorship after 40 years behind the iron curtain.

We Hungarians have always respected the desire of European Union institutions for dialogue, and we have always been ready for reasonable compromises. 

Therefore, we rightly expect the respect and equal treatment due to Hungary from the European Union’s institutions.

We expect the European Union to respect the rights that we acquired after our accession just as it would respect those of any other country. 

The Parliament of Hungary is surprised that the European Parliament passed a decree that it had no right to pass, that exceeded its jurisdiction. The European Parliament made demands, introduced new procedures, and created institutions that violate Hungary’s sovereignty as guaranteed in the fundamental treaty. 

With this decision the European Parliament went against basic European values and led the Union on a dangerous path.

The Hungarian Parliament is further worried by the undue influence of business interests that underlie this abuse of power.

Hungary is reducing the cost of energy paid by families. This may hurt the interests of many European companies that for years have had windfall profits from their monopoly in Hungary. It is unacceptable that the European Union tries to influence our homeland to further the interests of these companies.

The Hungarian Parliament believes that Europe is in danger if the interests of multinationals are realized at the expense of the rules laid down in the fundamental treaty.

Today we adopt a resolution to defend Hungary’s sovereignty and the equality of Hungarians in the European Union.

We call on the Hungarian government not to give in to the pressure of the European Union, not to let the nation’s rights guaranteed in the fundamental treaty be violated, and to continue the policies that make the lives of the Hungarian people easier.

2. This decree of Parliament will enter into force the day after its publication.”

The embellished historical commonplaces that introduce this resolution are to be expected. Hungarians always drag them out when they want to prove their European roots and vaunt their accomplishments in defending Europe from the eastern peril.

What is much more interesting is the government’s attempt to establish a connection between the Orbán government’s lowering of energy prices and the Tavares report which, after all, is about the Hungarian government’s transgression of democratic norms and not about economics. This alleged connection is ludicrous in and of itself, but if we consider that Rui Tavares has been working on this report for at least one and a half years and the Orbán government came up with the political masterstroke of lowering energy prices only a couple of months ago, it should be clear to everybody that there is absolutely no link between the two.

The attempt to cast business interests as a motivating force behind the Tavares report and its acceptance is more than tenuous. Support for it came largely from the left–the socialists, greens, and liberals who are not exactly known for their support of big business. The right- and right-of-center parties are by and large more pro-business. And a majority of their representatives stood by Viktor Orbán.

In his speech in parliament today Orbán again attacked the multinationals and the banks, but some Hungarians, it seems, want more than bellicose talk. Here are the first signs.

Today the verdict was handed down in a case that has been been in and out of court for two and a half years.  The plaintiff took out a foreign currency loan which he now finds impossible to pay back due to the weakening of the Hungarian forint. He claimed that he shouldn’t have to pay the loan back because the bank did not mention the bid-ask spread in the contract. Two lower courts decided in favor of the plaintiff. The case then moved up to the highest court, the Kúria. For a number of days demonstrators have stood in front of the building, waiting in a rather ugly mood. The verdict finally came: OTP, Hungary’s largest bank, is not liable. The plaintiff will have to pay his loan back.

Scuffle in front of Viktor Orbán’s house – Népszabadság, Photo Árpád Kurucz

The crowd outside was outraged at the verdict. One would have thought that the crowd would go OTP headquarters to vent their anger. But no, they headed toward Viktor Orbán’s private residence in Buda. One could see gallows and red-and-white striped flags (the favorite symbol of the Hungarian extreme right), interspersed with the Hungarian tricolor.

So, if Orbán thinks that by whipping up anti-business sentiment he will gain great political advantage, he might be mistaken. These dissatisfied people, it seems, blame him for being unable to “solve their problems.” After all, he promised that he would take care of those hundreds of thousands of people who lost their homes as a result of the collapse of the Hungarian forint over the last few years.

As for Viktor Orbán’s speech in parliament, he didn’t add much to the content of the proposed resolution, except for getting close to calling those Hungarian MEPs who voted for the Tavares report traitors. However, Attila Mesterházy in a forceful speech condemned the Orbán government, the prime minister’s “business interests,” and his “majoritarian rule.”

The Fidesz back benchers are the noisiest ones on the right and unfortunately they are also ignorant. For example, when Mesterházy reminded Viktor Orbán that when he was in opposition he went so far as to ask the European People’s Party to use its influence in the European Union to stop any payment to Hungary, they tried to drown out Mesterházy. I’m sure most of them thought that this was a lie. It was, however, absolutely true. Orbán rarely if ever thought about collateral damage to the country as a whole in his relentless attacks on the socialist-liberal government.

In addition, Attila Mesterházy and Gábor Harangozó on behalf of MSZP turned in amendments to the proposed resolution. Since there is no chance of Fidesz ever accepting any amendment coming from the opposition, by now parties on the left write these amendments in jest. It is an amusing piece that is worth reading.