All by myself

Hungary, meet the new EU

This weekend, the 27-member European Commission college will take the unprecedented step of urging the suspension of most of Hungary’s €28-billion EU funding entitlement.

Once commissioners have taken this decision, Hungarian prime minister Viktor Orbán has until the end of the year to convince his estranged fellow heads of government and their finance ministers that he’s taking credible measures to tackle endemic corruption. If he fails, Hungary stands to lose more than €4 billion in post-pandemic recovery grants already built into the government’s medium-term budgetary plans.

Despite his repeated provocations, Orbán never believed it would come to this. Neither, for that matter, did investors, who bought forints and Hungarian assets every time Orbán’s officials briefed the press that a deal with the commission was close. And they did this a lot – coincidentally, every time the forint got weaker than they’d like and threatened to import even more inflation.

Greek lessons

Watching Orbán’s most-trusted ministers engaging in 11th-hour negotiations as the commission deadline approached brought back bad memories of 2015 and the diplomatic effort by the Syriza-led government to renegotiate the terms of Greece’s structural-adjustment programme.

Then, as now, officials were unwilling or unable to come forward with EU-compliant proposals in good time because politicians at home were convinced the rules could be bent by a high-level political bargain. Detailed negotiations were paralysed for months as the clock ticked towards default. Greek politicians kept trying alternative channels – notional left-wing allies in Paris, the White House, the commission presidency, and always the European Council rather than finance ministers – to impose realpolitik over bureaucrats’ rulebooks.

In the same way, Orbán and his ministers seem to think they just need to do politics harder. Last week, justice minister Judit Varga flew into Brussels and told every relevant commissioner (and there are way too many of them involved in this file) how terribly hard she’s working to meet their demands. Meanwhile, Tibor Navracsics – a former commissioner appointed by Orbán four months ago as his “good cop” negotiator – reassured the foreign press that legislation to set up a credible anti-corruption office was imminent. What the two sides need now, he said, is calm trust-building and political involvement.

The Greeks played this game for months with Yanis Varoufakis as cool-but-mad cop and a double act of Yannis Dragasakis and George Chouliarakis playing the Navracsics role. It took months and a near-extinction event but they were shocked to discover – as were British politicians four years later – that political discretion beyond the mandate handed to the EU’s negotiators is severely limited.

The Greeks and the British failed but at least, compared to Orbán, they had some political logic to draw on. The UK is a major economic, diplomatic and military power with leverage via Northern Ireland over the integrity of the EU’s single market for goods. A Greek debt default would have been expensive for the EU and contagious for the Italian bond market while a disorderly Grexit would have threatened the euro area’s payments system and destabilised a strategically important NATO member with political and cultural affinities to Russia.

In comparison, what leverage has Hungary got? It’s a small and already uncooperative NATO member on the union’s eastern border with its own currency. With the October 2021 Czech and April 2022 Slovenian elections, Orbán lost two of his three EU allies. And, following Russia’s full-scale invasion of Ukraine on 24 February, the Budapest-Warsaw axis has broken as Orbán seeks to “both-sides” the war while his Polish soulmate Jarosław Kaczyński draws on his inner Russophobe. Even Orbán’s Italian friends are having second thoughts.

The threat of a bad example

The post-24/2 EU has no reason to make concessions to Budapest. If anything, the incentives are all the other way. It’s not always the case but the European Parliament spoke for most governments this week when deputies voted to approve a report describing Hungary as “a hybrid regime of electoral autocracy”. Accession is years away but the union is now committed to accepting Ukraine, Serbia, Moldova, North Macedonia, Montenegro, Albania (and, pending some changes, Georgia) as members. Once its population has removed Alexander Lukashenko and his regime, Belarus would join the queue. The EU’s treatment of Orbánism will set a critical precedent for these applicants and this will matter a lot sooner than accession day. In her state of the union speech last week, commission president Ursula von der Leyen confirmed she would take up the French proposal for a formal waiting room – a European Political Community. By definition, while the EPC is sure to contain trade concessions, its foundation will be political values and commitments to the rule of law.

By recommending fund suspension this weekend, von der Leyen is forcing 26 governments to make a choice. Unlike the infamous but unusable Article 7 of the Treaty on European Union that can suspend a state’s membership rights, the decision on withholding funds doesn’t require unanimity. To avoid punishment, Orbán needs to rustle up four supporting governments representing 35% of the EU’s population.

Friendless even in Washington – at least until 2025 if Donald Trump or Orbán tribute band Ron DeSantis is elected president – the Hungarian government can do nothing except concede in full or surrender the funds for the sake of political freedom. It would leave a hole in his budget, provoke sovereign downgrades by credit agencies, and anger the urban voters who don’t support him. But Orbán could decide it’s worth the pain to protect the clientelist and nepotistic capitalism he has developed over the past 12 years and keep Hungary as the traditionalist conservatives’ Zion.

Support for his Fidesz party is slipping, according to a new poll conducted by the IDEA institute in the week ending 9 September, but the united opposition is now disunited. Besides, repeated experience tells Orbán he can always play fast and loose with electoral rules and mobilise his base against George Soros and gay fifth columnists to turn opinion-poll lags into actual electoral victories. It wouldn’t be beyond his considerable populist skills to shift the blame for this economic defeat but political win onto Soros, Volodymyr Zelensky, and the LGBT lobby.

It's a risky strategy. No one likes to get poorer and it means missing out on some of those lovely, divertible fiscal transfers. The cleverest strategy would be to offer EU governments almost (but not quite) everything they say they want then dare them to say no. They should. This and the design of the EPC are the first real political test of the post-invasion union. Surrender should not be an option.