Hungary faces $1.1 billion loss in EU funds as deadline looms

Hungary is set to lose $1.1 billion in EU funding as the New Year bells chime at midnight, as part of a larger freeze totaling $20 billion. The European Union has blocked the funds over concerns about Hungary's rule of law. The loss adds to Hungary's economic challenges and risks prolonging its recession.

The EU began withholding these funds to pressure Prime Minister Viktor Orbán to reverse policies seen as undermining democracy. The frozen funds include grants for poorer regions and post-Covid recovery aid. Hungary had until December 31 to meet 17 required reforms to unlock the funds.

But the European Commission says Hungary's progress on these reforms has been insufficient. Hungary's moves to obtain the funding are "not quite what we were hoping for," said EU Budget Commissioner Piotr Serafin after meeting with Hungary's European Affairs Minister János Bóka.

The reforms include tightening anti-corruption laws and addressing conflicts of interest. Hungary has struggled to meet these demands, further complicating its economic situation. The country's economic growth is well below the EU average, and its budget deficit is among the highest in the bloc, at 5.4 percent.

In addition to the funding freeze, Hungary is losing $1.1 million a day in penalties related to its treatment of asylum seekers. This has added up to $215 million in losses this year. The European Court of Justice has also imposed a $215 million fine on Hungary for ignoring previous rulings.

The Orbán government has criticized the EU's actions, calling them politically motivated.

Opposition leader Peter Magyar has seized on the opportunity, accusing Orbán's government of mismanagement. "This is a crisis of the government's own making," Magyar said. "It has failed to prioritize the country's future."

Hungary faces difficult choices ahead. With these funds likely blocked until at least 2026, the government has already announced cuts to infrastructure projects and social spending. Economic Minister Marton Nagy said Hungary would not overspend in the coming year. However, this is unlikely to prevent a deeper recession.

Hungary's options are limited, and its government faces increasing pressure. Opposition parties have criticized Orbán for failing to prioritize sectors like healthcare and education, which are already under strain. These sectors could face further cuts if the EU funding remains frozen.

The EU has warned that funding will remain blocked unless Hungary makes further progress on long-standing issues like judicial independence, anti-corruption measures and treatment of minorities and asylum seekers. 

Without this funding or a significant economic turnaround, Hungary risks a prolonged period of stagnation, with serious political ramifications for Orbán's government as the 2026 elections approach.