Funds for Hungary After a Change of Government. Council of the EU Lifts Budget Protection Measures Despite Unfulfilled Commitments

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The Council of the European Union adopted Implementing Decision (EU) 2026/2324 lifting measures for the protection of the Union budget against breaches of the principles of the rule of law in Hungary and repealing Implementing Decision (EU) 2022/2506. This brings to an end the first-ever case of the EU applying the so-called conditionality mechanism, which makes access to EU funds conditional on respect for the principles of the rule of law.

In December 2022, under Viktor Orbán’s government, the Council froze approximately €6.3 billion in cohesion funds for Hungary, citing, among other things, irregularities in public procurement and weak anti-corruption mechanisms. The budget protection measures also covered universities which, under Orbán’s government, had been transferred to foundations managing public assets, whose boards could include active politicians. These universities lost access to the EU’s Erasmus+ and Horizon Europe programs. The breakthrough came six months after the April elections, in which Péter Magyar’s Tisza party took power. Within a few months, the new majority amended the Fundamental Law and began liquidating these foundations, and Hungary joined the European Public Prosecutor’s Office (EPPO). The decision unblocks approximately €4.2 billion, although the Council itself admits that Hungary has not fully implemented some of its commitments. Meanwhile, other funds remain frozen under separate procedures, including in connection with Hungary’s child protection law, from which parliament removed the contested provisions on the day the decision was issued.

What is the conditionality mechanism?

The so-called conditionality mechanism was established by Regulation (EU, Euratom) 2020/2092 of the European Parliament and of the Council of December 16, 2020 on a general regime of conditionality for the protection of the Union budget. It was adopted as a package with the multiannual financial framework for 2021–2027 and has applied since January 1, 2021. Its legal basis is Article 322(1)(a) of the Treaty on the Functioning of the European Union (TFEU), which allows the adoption of financial rules concerning the implementation of the budget.

The regulation lists the principles of the rule of law, which include, among others, legality, legal certainty, prohibition of arbitrariness of the executive powers, effective judicial protection by independent and impartial courts, separation of powers, and non-discrimination and equality before the law (Art. 2(a) of the regulation). The principle of legality implies “a transparent, accountable, democratic and pluralistic law-making process” (Art. 2(a)). The rule of law is to be understood having regard to the other values listed in Article 2 of the Treaty on European Union (TEU), which, alongside the rule of law, lists respect for human dignity, freedom, democracy, equality and respect for human rights, including the rights of persons belonging to minorities. The cited Treaty provision also states that these values are common to the Member States “in a society in which pluralism, non-discrimination, tolerance, justice, solidarity and equality between women and men prevail.”

As examples of breaches, the regulation cites, among others, endangering the independence of the judiciary, failing to prevent arbitrary decisions of public authorities, and limiting the effective investigation and prosecution of breaches of law (Art. 3). However, a breach in itself is not sufficient to freeze funds. It must affect, or seriously risk affecting, the sound financial management of the Union budget or the protection of the financial interests of the Union in a sufficiently direct way (Art. 4(1)). Examples include irregularities in the functioning of prosecution services in cases of offenses against the Union budget, or the lack of effective judicial review of their actions (Art. 4(2)).

The procedure against Hungary

On April 27, 2022, the European Commission sent Hungary a written notification concerning, among other things, irregularities in public procurement, conflicts of interest in public interest asset management foundations, limitations on the prosecution of crimes, and the lack of an effective anti-corruption framework. By Implementing Decision (EU) 2022/2506 of December 15, 2022, the Council suspended 55 percent of budgetary commitments under three cohesion policy operational programs. It also prohibited entering into legal commitments with public interest foundations and the entities maintained by them, and required Hungary to inform the Commission every three months on the implementation of the remedial measures. In its decision of December 13, 2023, the Commission found that Hungary had not remedied the situation that had led to the adoption of the measures, and in its decision of December 16, 2024, it reached the same conclusion with regard to the public interest foundations.

Change of government in Hungary and further steps by EU institutions

In the parliamentary elections of April 12, 2026, the Tisza party won a two-thirds majority of seats, and on May 9, 2026, Péter Magyar became prime minister. Viktor Orbán’s party thus lost power after 16 years. The Council decision notes that the government representatives on the Anti-Corruption Task Force have changed “following the establishment of the new Government” (recital 73). Most of the remedial measures were introduced by Act XVIII of 2026 “on the amendment of certain Acts necessary for accessing European Union funds,” adopted on June 23, 2026, and by Act XXXV of July 28, 2026 (recital 16). On September 9, 2026, Hungary submitted a written notification to the Commission, requesting that the measures be lifted in full and the reporting obligation be ceased (recital 14). On September 23, 2026, the Commission submitted a proposal to the Council to lift them.

The Council adopted the decision at a meeting of the General Affairs Council in Luxembourg, and it was published in the Official Journal of the European Union on October 21, 2026. The decision states that the conditions for adopting the budget protection measures against Hungary are no longer met (Art. 1), lifts those measures (Art. 2) and repeals Implementing Decision (EU) 2022/2506 (Art. 3). The decision takes effect on the date of its notification to Hungary (Art. 4).

Liquidation of the foundations and strengthening of the Integrity Authority

The most far-reaching of the reforms adopted after the change of government is the liquidation of the public interest asset management foundations (mostly referred to in the decision as “public interest trusts”), which the 2022 decision identified as a source of conflict-of-interest risk (recital 18). The Sixteenth Amendment to the Fundamental Law of June 15, 2026 provided for their assets to revert to the State free of charge (recital 21). Foundations unrelated to higher education were struck off the register on August 31, 2026 (recital 28), while the rules for liquidating foundations operating in that field are to be laid down in a separate act by August 1, 2027 (recital 31). Members of parliament and mayors, among others, have been barred from sitting on their governing bodies (recital 36). The Council found that Hungary had fulfilled the remedial measure concerning the foundations “and taken additional measures” (recital 46).

The Integrity Authority was also strengthened: it may process data covered by tax, banking, trade and professional secrecy (recital 61) and has direct access to 44 public registers (recital 88). Since August 2026, a public database of asset declarations has been in operation (recital 94), and failure to submit a declaration or concealment of one’s financial situation in it has become a criminal offense (recital 95).

The European Public Prosecutor’s Office and public procurement

By Decision (EU) 2026/1701 of July 10, 2026, the Commission confirmed Hungary’s participation in the EPPO (recital 176). The Council found that participation in the EPPO “is a remedial measure of a central nature” (recital 178), even though it was not among the remedial measures adopted in 2022. In public procurement, a presumption of conflict of interest was introduced where a person acting on behalf of a contracting authority is a beneficial owner of a bidder (recital 182). Journalists and non-governmental organizations gained access to beneficial ownership data (recital 185).

The Council points to several commitments that have not been fully implemented. The National Anti-Corruption Strategy for 2024–2025 was implemented to an insufficient degree, among other things without a systemic reform of the rules on lobbying, and a new strategy is to be adopted by November 15, 2026 (recitals 78–79). Therefore, according to the Council, “the remedial measure cannot be considered entirely fulfilled” (recital 100). The share of single-bid tenders financed from the state budget stood at 22 percent in 2025, against a target of 15 percent, and according to the Council, “the target was never achieved” (recitals 130 and 132). Support for participation in public procurement was granted to 1,477 small and medium-sized enterprises instead of at least 1,800 (recitals 154 and 157). Data on the common agricultural policy are to be fully uploaded to the Arachne+ system only by the end of 2026 (recital 164). Nevertheless, the Council concluded that “in many instances Hungary went beyond what it undertook to do in 2022” (recital 192), and that the remedial measures, “considered as a whole,” “effectively remedy the identified breaches of the principles of the rule of law and protect the Union budget” (recital 193).

Funds still frozen under separate procedures

Lifting the measures under Regulation 2020/2092 does not settle all financial disputes between Hungary and the EU. The disbursement of approximately €10 billion from the Recovery and Resilience Facility depends on the implementation of agreed reforms, and part of the cohesion funds remains frozen under separate procedures, including in connection with academic freedom and Hungary’s 2021 child protection law, which provided for a ban on promoting homosexuality and “gender reassignment” procedures. In its judgment of April 21, 2026, in Case C-769/22, the Court of Justice of the European Union (CJEU) found this law incompatible with EU law and, for the first time in a case against a Member State, found a violation of Article 2 TEU. On October 13, 2026, the day the Council adopted its decision, Hungary’s National Assembly removed from the law the provisions banning content depicting or promoting homosexuality and gender reassignment.

“The lifting of the measures against Hungary shows how much discretion the conditionality mechanism gives EU institutions. The Council admits that some of the commitments were not fully implemented, yet it deemed the remedial measures, ‘considered as a whole,’ sufficient. As in the case of Poland, in respect of which the European Commission withdrew its reasoned proposal under the Article 7 TEU procedure in 2024, the decision came after a change of government, and the Council attached particular importance to accession to the EPPO. The Ordo Iuris Institute has pointed out that the mechanism is a circumvention of Article 7 TEU, as it allows the rights of states to be restricted in a procedure unknown to the Treaties, by majority vote instead of unanimously, and therefore requires abolition, not correction. Doubts are also raised by the fact that the reforms adopted in order to recover the funds included an amendment to the Fundamental Law, even though the constitutional system of the state and the organization of education fall within the competence of the Member States. At the same time, in order to recover further funds, Hungary removed from its child protection law the provisions on content relating to the ban on promoting homosexuality and so-called gender reassignment, which shows that the EU’s financial instruments may also extend to matters of upbringing and the family,” stresses Patryk Ignaszczak of the Ordo Iuris Center for International Law.

See also:

• “Creeping Authoritarianism” in Poland and Hungary: Ordo Iuris Calls for a Joint International Initiative
• Poland’s Constitutional Court Strikes Down the Judge-Vetting Mechanism Brussels Required for Its Recovery Funds
• Hungary’s 2026 Elections Assessed as Free and Fair Despite External Pressures
• When Defending the Rule of Law Serves Politics: The European Commission’s Report on Poland
• Anna Kubacka: A conference was held in the European Parliament in Brussels on the topic of “Rule of law in the European Union: A concern for democracy or an assault on sovereignty?”

Source of cover photo: iStock