Delays Identified in EU Recovery Fund Payments to Hungary
European Court of Auditors issues warnings regarding the disbursement of funds amidst accountability concerns.
The European Court of Auditors has issued a report highlighting significant deficiencies and potential delays in the disbursement of the European Union's Recovery and Resilience Facility, which is designed to aid member states in recovering from the economic impacts of the COVID-19 pandemic.
The fund allocates a total of €650 billion (over HUF 260 trillion) as a one-time financial mechanism aimed at facilitating recovery efforts across the EU. However, the Court emphasized a lack of information regarding actual expenditures and results, raising concerns about transparency and value for taxpayer money.
Created as part of the EU budget post-pandemic, the fund offers both non-repayable grants and loans to support nations in overcoming economic damages caused by the crisis.
Member states were permitted to complement their plans with initiatives aimed at reducing dependency on Russian energy.
Hungary has thus far allocated a portion amounting to €10.4 billion from this fund, including approximately €1 billion as an advance payment from its domestic budget.
However, Hungary is the only EU member state that has yet to submit a standard payment request.
As noted in the report, by the end of 2024, all member states except Hungary had signed their operational agreements.
The Hungarian government has received only pre-financing due to a series of 27 rule of law 'super milestones' that must be achieved before any regular payment can be processed.
Although Hungary has successfully completed four of these milestones, only one additional milestone has been officially attempted for approval, amidst numerous issues.
While the report did not focus explicitly on the super milestones, it indicated that they largely align with the conditions governing the regular budget payments, which the EU has assessed as necessary when managing Hungary's access to funds.
The Court affirmed that the recovery fund serves as a crucial tool for the European Commission to protect the financial interests of the Union and ensure sound financial management of EU resources.
The report identified potential risks associated with the implementation of corrective measures, indicating that merely fulfilling the requirements does not guarantee lasting improvements in governance.
It raised concerns over the reliance on national governments for enforcing compliance with regulations, as domestic systems are described as being riddled with deficiencies.
The urgency for progress is underscored by the mandate that all initiatives outlined in the recovery and resilience plans must be completed by August 31, 2026, with corrective measures to be executed by the end of the year when the Commission processes final payment requests.
The Hungarian Prime Minister noted potential challenges that may arise beyond 2026 concerning EU funding.
Moreover, after meeting the super milestones, Hungary must still address a range of additional milestones and reforms tied to deadlines, such as the renovation or construction of 40 healthcare facilities by mid-2026, necessitating upfront financing from the national budget.
The Hungarian government has expressed challenges in meeting the stipulations set by the EU.
The Court's summary revealed that other member states are also experiencing delays in meeting their milestones, with nearly three-quarters still not recognized as fulfilled, and over half of all payment requests reported to be delayed.
As of the closure of the report at the beginning of the year, only Hungary and Sweden had not received funds for milestone completion, although Sweden submitted a payment request as early as December of the previous year.
Bulgaria, facing the most significant challenges, has registered for 49% of its total eligible funding, while the EU average for payment requests stands at 42%.
The auditors also cautioned about rising interest costs associated with the fund's common borrowing framework, although current rates of 3.1% remain lower than Hungary's more costly debt financing.
This financial framework could influence future EU budgets significantly, as the auditors noted that the European Commission plans to adapt its budgetary goals in line with the structure of the recovery fund as previously outlined.
The first official proposal for the EU budget is anticipated in July, while the European Parliament is preparing to issue its stance on the matter.
The fund allocates a total of €650 billion (over HUF 260 trillion) as a one-time financial mechanism aimed at facilitating recovery efforts across the EU. However, the Court emphasized a lack of information regarding actual expenditures and results, raising concerns about transparency and value for taxpayer money.
Created as part of the EU budget post-pandemic, the fund offers both non-repayable grants and loans to support nations in overcoming economic damages caused by the crisis.
Member states were permitted to complement their plans with initiatives aimed at reducing dependency on Russian energy.
Hungary has thus far allocated a portion amounting to €10.4 billion from this fund, including approximately €1 billion as an advance payment from its domestic budget.
However, Hungary is the only EU member state that has yet to submit a standard payment request.
As noted in the report, by the end of 2024, all member states except Hungary had signed their operational agreements.
The Hungarian government has received only pre-financing due to a series of 27 rule of law 'super milestones' that must be achieved before any regular payment can be processed.
Although Hungary has successfully completed four of these milestones, only one additional milestone has been officially attempted for approval, amidst numerous issues.
While the report did not focus explicitly on the super milestones, it indicated that they largely align with the conditions governing the regular budget payments, which the EU has assessed as necessary when managing Hungary's access to funds.
The Court affirmed that the recovery fund serves as a crucial tool for the European Commission to protect the financial interests of the Union and ensure sound financial management of EU resources.
The report identified potential risks associated with the implementation of corrective measures, indicating that merely fulfilling the requirements does not guarantee lasting improvements in governance.
It raised concerns over the reliance on national governments for enforcing compliance with regulations, as domestic systems are described as being riddled with deficiencies.
The urgency for progress is underscored by the mandate that all initiatives outlined in the recovery and resilience plans must be completed by August 31, 2026, with corrective measures to be executed by the end of the year when the Commission processes final payment requests.
The Hungarian Prime Minister noted potential challenges that may arise beyond 2026 concerning EU funding.
Moreover, after meeting the super milestones, Hungary must still address a range of additional milestones and reforms tied to deadlines, such as the renovation or construction of 40 healthcare facilities by mid-2026, necessitating upfront financing from the national budget.
The Hungarian government has expressed challenges in meeting the stipulations set by the EU.
The Court's summary revealed that other member states are also experiencing delays in meeting their milestones, with nearly three-quarters still not recognized as fulfilled, and over half of all payment requests reported to be delayed.
As of the closure of the report at the beginning of the year, only Hungary and Sweden had not received funds for milestone completion, although Sweden submitted a payment request as early as December of the previous year.
Bulgaria, facing the most significant challenges, has registered for 49% of its total eligible funding, while the EU average for payment requests stands at 42%.
The auditors also cautioned about rising interest costs associated with the fund's common borrowing framework, although current rates of 3.1% remain lower than Hungary's more costly debt financing.
This financial framework could influence future EU budgets significantly, as the auditors noted that the European Commission plans to adapt its budgetary goals in line with the structure of the recovery fund as previously outlined.
The first official proposal for the EU budget is anticipated in July, while the European Parliament is preparing to issue its stance on the matter.
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