EU refers Hungary to court but clears way for aid talks
by Daniel Mason
Hungary was today given the go-ahead to negotiate a potential financial aid package with the European Commission after giving assurances that it would take action to ensure the independence of its central bank. But the commission referred Hungary to the courts over concerns about its judiciary and data protection authority.
Prime Minister Viktor Orbán's government has been seeking talks with the European Union and the International Monetary Fund about a precautionary loan facility, possibly in the region of €20bn, to stabilise its finances. But the discussions were postponed in December last year when the commission raised objections to a series of new laws introduced by Budapest since the right-wing government's election in 2010.
Orbán has been widely criticised for using his Fidesz party's two-thirds majority in parliament to push through controversial legislation and a new constitution. Meanwhile, Hungary has struggled to meet the EU's rules on the size of its budget deficit, achieving the target of 3 per cent target or less only once since joining the EU in 2004. Already this year, member states have voted to withhold almost €500m of EU cohesion funds until the budget shortfall is corrected. Most forecasts predict a recession in 2012.
Following a meeting yesterday between Orbán and commission president José Manuel Barroso, the EU executive accepted that Hungary had taken "sufficient action" on the bank laws to resume aid negotiations. In a statement, the commission said Orbán had pledged to take "tangible steps to ensure compliance with EU law" and had committed to talks with the European Central Bank on some outstanding issues. It insisted that the independence of the national central bank was vital to create the "stable and independent legal environment that lies at the heart of the investors' confidence and influences macroeconomic stability".
The commission added that the infringement case relating to the central bank would be closed as soon as the Hungarian government passed the promised legislation. On the news of the breakthrough, the Hungarian forint rose and the cost of 10-year government borrowing fell. Nevertheless, in a research note, Capital Economics said it was "somewhat surprised" the case had been dropped and added that there remained "significant sticking points" before a deal could be reached on a loan, which would be Hungary's second after it agreed a similar arrangement in 2008. The think-tank warned that a recession was likely "with or without the IMF/EU".
However, the commission said that the issues relating to the judiciary and data protection authority "could not be remedied" and it would refer Hungary to the European Court of Justice in both cases. According to the commission, the concerns over the independence of the data protection authority – a requirement under EU law – had been only "partly" addressed by Hungary. It accepted that the move to bring the National Agency for Data Protection into line with European rules meant it "could decide" to drop some of its concerns. But it maintained that the premature termination of the former data commissioner's contract, two years and nine months before his term was due to expire, "violated the independence of the supervisory authority".
Meanwhile, the reduction of the retirement age for judges, prosecutors and notaries from 70 to 62 remained a "very concrete legal concern" in relation to EU rules on age discrimination and changes to mandatory age restrictions, said the commission. It said the rule change would lead to the retirement of 10 per cent of judges and 25 per cent of notaries this year. That would allow the government to make more of its own appointments. The EU executive said Hungary had provided no "coherent" explanation for the change and called on the government to suspend the application of the law while the court considers the case.
On other concerns relating to the judiciary – including the transfer of judges without their consent, and the power of the President of the National Judicial Office to designate courts in particular cases – the commission said it recognised that discussions were taking place both in the Hungarian parliament and with the Council of Europe's Venice Commission over how to resolve the issues. Nevertheless the commission said it reserved the right to launch infringement proceedings if it was not satisfied with the outcome.
Rebecca Harms, co-president of the Greens/European Free Alliance political group in the European Parliament, welcomed the commission's "resolve" but said she thought the issues raised were "only the tip of the iceberg". She added: "The commission is continuing to ignore wider concerns with constitutional changes and media freedom restrictions, which are completely at odds with the core values on which the EU is founded that which the commission, as guardian of the treaty, has a duty of defend."