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Will Brussels stop funding autocracy?

Hungarian Prime Minister Viktor Orban’s power rests in part on how he distributes E.U. funds to oligarchs and local authorities in exchange for support

- April 12, 2022

Ursula von der Leyen, the president of the European Commission (the E.U.’s executive body), made an important announcement on April 5, 2022. She told the European Parliament that the commission had finally decided to take action against Hungary. In technical language, the commission will trigger the “Rule of Law Conditionality Regulation.”

So is the European Union really going to stop sending subsidies to a government that has been rapidly undermining democracy, or will it appease electoral autocrats as it has in the past? Here’s what you need to know.

The E.U. has been slow to punish its antidemocratic member countries

Both U.S. and European leaders worry that we are in the midst of a worldwide struggle between democracy and authoritarianism. The E.U. won a Nobel Prize in 2012 in part for promoting “democracy and human rights in Europe.” So why is it that the E.U. is home to the two most rapidly autocratizing countries in the world, Poland and Hungary? And why is the E.U. funding this democratic backsliding?

Both governments continue to receive billions of euros in E.U. subsidies while expressing contempt for E.U. norms and dismantling democratic institutions. Hungary, in particular, is no longer a democracy, according to ratings bodies such as the V-Dem Institute and Freedom House. These organizations’ research finds that Hungarian Prime Minister Viktor Orban has transformed the country into an “electoral autocracy” or “hybrid regime” — a country that maintains the formal trappings of democracy, but tilts the playing field so far in the ruling party’s favor that the regime fails to meet conventional minimum standards for democracy.

That tilted playing field was in evidence in the recent election in Hungary. Orban won in a landslide, but election observers from the Organization for Security and Co-operation in Europe criticized the election as being “marred by the absence of a level playing field” and “characterized by a pervasive overlap between the ruling coalition and the government.”

The E.U.’s pet autocrat

Despite all the above, E.U. funds have continued to flow into Orban’s hands. His regime depends heavily on E.U. funds, which account for more than 80 percent of public investment in Hungary. Rigging the electoral rules and controlling news media have been very important, but Orban could never have built his autocracy without generous support from the E.U. European funds finance the sprawling system of client relationships that bolster support for his party among the rural electorate, in which local authorities and party representatives profit from contracts with the government and exchange public works jobs, cash handouts and food for votes.

It also benefits those closely connected to Orban and his regime. For example, a New York Times investigation found that Orban’s government had distributed land to “his family members and close associates,” allowing them to benefit from E.U. farming subsidies. While Russian President Vladimir Putin’s oligarchs are enriched by oil and gas revenue, Orban’s oligarchs feed on E.U. funds.

Not only is this widespread corruption exposed by international media and by anti-corruption watchdogs, but in 2021, the E.U.’s own European Anti-Fraud Office, OLAF, reported that Hungary had by far the largest percentage of its payments flagged for financial irregularities of any member state. E.U. officials have known what is happening for years. Nevertheless, for political reasons that I explore in my research, the E.U. has refused to act and instead continued to fund Orban’s hybrid authoritarian regime.

Orban’s government may be losing its impunity

Finally, there is some reason to think this may change. Since last year, the European Commission has been withholding the distribution of pandemic recovery funds to Hungary, citing rule of law concerns. In December 2020, E.U. lawmakers adopted a new law — the Rule of Law Conditionality Regulation. This law enables the E.U. to suspend even more funds to a member state whose breaches of rule of law principles “affect or seriously risk affecting” the E.U.’s budget and financial interests.

For over a year, the European Commission refused to apply the regulation to Hungary. But von der Leyen’s announcement indicates it may finally deploy this new tool.

Substantially or totally suspending E.U. funds to Hungary would put pressure on the Orban regime. It might also signal aspiring autocrats that flouting E.U. norms can be costly.

But the commission may have in mind something far less significant. The E.U.’s budget commissioner, Johannes Hahn, has indicated that the commission will trigger the regulation against Hungary on the basis of corruption in its system of public procurement, rather than on the basis of broader violations of rule of law principles. This might seem like a minor detail. It suggests, however, the commission may only intend to suspend a small fraction of the hundreds of millions of euros it sends to Budapest every month.

The commission has long had the authority to suspend funding to states on the grounds of documented corruption. It has done so on several occasions. The Rule of Law Conditionality Regulation was supposed to allow the E.U. to suspend money flows on the basis of broad violations of rule of law principles, such as undermining the independence of judges and prosecutors. Instead, Hahn has indicated that he is interpreting the regulation narrowly and focusing only on proven corruption.

That could mean that E.U. officials spent four years — the regulation was first proposed in 2018 — creating a weaker version of its existing tools to fight corruption. The old rule allowed the commission to quickly suspend payments to a member state on its own. The new regulation instead requires the commission to win the support of a supermajority of member governments and follow a process that would take roughly six to nine months before any money could be suspended.

The new Rule of Law Conditionality Regulation will likely have real impact on democratic backsliders like Hungary only if E.U. officials adhere to its original intention, using it to address systemic threats to the rule of law in E.U. member states that risk undermining E.U. spending.

R. Daniel Kelemen (@rdanielkelemen) is a professor of political science and law and chair of the department of political science at Rutgers University.