The European Commission wants to withhold €7.5 billion in payments to Hungary because of allegations of corruption and rule of law violations, Budget Commissioner Johannes Hahn said on Sunday.
"Today's decision is a clear demonstration of the Commission's resolve to protect the EU budget, and to use all tools at our disposal to ensure this important objective," said Hahn.
The European Commission has long criticized widespread corruption in Hungary. A July report spoke of "an environment where risks of clientelism, favouritism and nepotism in high-level public administration remain unaddressed."
Hungary has shown some willingness to tackle the problem, including announcing an independent authority to monitor the use of EU funds. The EU has said those might work, but they need to be implemented properly.
Should the commission propose to block the funds, a majority of 15 EU countries representing 65% of the bloc's population would still have to approve the plan.
In an initial reaction, the Hungarian government said it was convinced that things would not go that far.
Hungary's chief negotiator Tibor Navracsics told a press conference in Budapest on Sunday that the threatened funding cuts would not come about.
The Hungarian government would not dream of failing to honour its commitments, Navracsics added.
For years, the European Commission has been accusing Hungary under national conservative Prime Minister Viktor Orban, in power since 2010, of undermining EU standards and fundamental values.
Various EU bodies have accused Orban of dismantling democracy in Hungary as well as overseeing pervasive corruption and disregarding the rule of law.
But this is the first time the commission has attempted to take the step of cutting off funding due to concerns about rule of law problems in a member country.
Commission President Urusla von der Leyen began the process of restricting funding in April by using a rule of law mechanism that was implemented in 2021 to ensure that EU members adhere to the group's general principles. A key principle for making use of the mechanism is whether it's believed EU funds are being misused.
Hungary and Poland have both clashed with the commission and feel threatened by the new instrument. They went to the European Court of Justice to have it thrown out, but that attempt failed in February. Both countries receive billions of euros from the EU annually.
In addition to the latest budgetary step, the EU has so far not disbursed money to Hungary from a special coronavirus assistance fund. Hungary is the only EU member whose coronavirus recovery plan has not met with approval from the commission.
