Hungary Faces Economic Strain as EU Withholds Over €1 Billion in Funds
Budapest is confronting significant economic challenges as a result of losing access to over €1 billion in European Union funding, a consequence of ongoing disputes over rule of law concerns and failures to implement necessary reforms. The loss of these funds, coupled with a weakening economy, is intensifying budgetary pressures on the Hungarian government.
The European Commission announced the forfeiture of approximately €1 billion in EU aid on January 1, 2025, after Hungary failed to address concerns regarding corruption, conflicts of interest, and transparency. This marks the first instance in history where Brussels has taken such action, according to reports. The funds were initially allocated under the condition that Hungary would undertake reforms by the end of 2024, a deadline that was not met.
In addition to the €1 billion now permanently lost, Hungary is also facing a further €19 billion in funds that remain frozen. The EU initiated “conditionality” proceedings against Hungary in 2022, citing infringements of public procurement rules and a lack of control and transparency. While some funds were unblocked following pledges of reform, the core issues remained unresolved.
The financial blow comes as Hungary’s economy struggles with slowing export markets, declining domestic consumption, and a weakening forint. The government is now facing a shortfall of approximately HUF 125 billion (EUR 304 million) which must be sourced domestically to compensate for the EU funding cuts. Further compounding the financial strain, the European Commission has already deducted EUR 300 million in cohesion and agricultural EU funding, delaying development projects and complicating efforts to meet the 2024 budget deficit target.
The loss of funds also includes approximately EUR 1.1 billion that could be forfeited due to unresolved rule of law disputes and delays in the conditionality procedure, as well as EUR 300 million in fines levied by the European Commission. Under the EU’s “n+2” rule, any suspended funds not addressed within two years will be permanently lost, creating a critical deadline for Hungary to lift the freeze by the end of 2026.
The frozen funds impact key allocations, including HUF 430-450 billion (approximately EUR 1-1.1 billion) from the 2022 budget, earmarked for vital programs. Hungary is also facing fines from the European Court of Justice, including a daily EUR 1 million penalty and a one-off EUR 200 million fine for failing to implement asylum reforms.
The situation is further complicated by concerns about transparency and anti-corruption measures. Despite claims of reforms made by the government in autumn 2023, the European Commission continues to express reservations.
