EU executive approves 900 million euros in funds for Hungary

By Gabriela Baczynska

BRUSSELS (Reuters) -The European Union executive on Thursday approved 900 million euros ($1 billion) in advance payments to Hungary under its hitherto frozen share of recovery funds, as the bloc seeks to overcome Budapest's veto of aid to Ukraine.

The EU's Brussels-based executive, the European Commission, locked Hungary out of the bloc's post-pandemic economic stimulus due to concerns over corruption and backpedalling on democratic checks and balances under veteran Prime Minister Viktor Orban.

In turn, Hungary has blocked EU decisions otherwise expected next month to grant Ukraine 50 billion euros in economic aid through 2027 and start accession talks with Kyiv. Budapest also stalled a plan to extend 20 billion euros in EU military aid to Kyiv, and is against sanctions over Russia for waging the war.

EU support is crucial to Ukraine, which has been struggling to push back a full-scale Russian invasion since February 2022.

Orban, who touts his ties with Moscow, says Hungary is no more corrupt than other EU countries.

Budapest has rolled out a billboard campaign vilifying the European Commission, and Orban's Fidesz party is pushing a bill on "protecting national sovereignty" from foreign meddling - both moves raising the stakes in Hungary's clashes with the EU.

A Budapest currency trader put the muted reaction on the forint to the news partly on the U.S. market holiday for Thanksgiving on Thursday.

"Also, markets understand that this is only the beginning, and may need a bigger impulse to put the forint on a firming path," said the trader, who declined to be named.

BARGAINING WITH HUNGARY

Hungary's chief EU negotiator, Tibor Navracsics, was quoted by the state news agency MTI as saying Budapest will continue negotiating with Brussels to unlock "all the EU funds we are entitled to as soon as possible."

The advance payments - which do not require meeting rule-of-law conditions otherwise attached to EU financial aid - come under RePowerEU, part of the post-pandemic EU stimulus meant to support energy transition away from fossil fuels.

EU officials said Hungary's amended recovery plan is worth a total of 10.4 billion euros over several years - or about 5% of Hungary's 2023 GDP - including 4.6 billion euros under RePowerEU: 0.7 billion euros in grants and 3.9 billion in loans.

EU officials said Hungary would use the RePowerEU money to modernise its electricity sector through smart metres and digitalisation of energy companies.

The Commission's decision on Thursday to give the nod to Hungary's amended recovery plan must now be approved by other EU countries, possibly as soon as during Dec. 8 talks among the 27 member states' finance ministers.

EU officials expected two payments of around 460 million euros each to follow next year.

The officials insisted Hungary must meet EU conditions on fighting corruption and ensuring judicial independence, among others, to access any more of the funds.

EU officials told Reuters last month that the bloc was considering unlocking aid for Hungary to win Budapest's support for Ukraine. More recently, however, sources involved in preparing a Dec. 14-15 EU leaders' summit to discuss Ukraine channelled increasing scepticism that Orban could be swayed.

($1 = 0.9168 euro)

(Additional reporting by Boldizsar Gyori in Budapest, Writing by Gabriela Baczynska, Editing by Toby Chopra, Bernadette Baum and Jonathan Oatis)