EC launches conditionality mechanism against government, MNB raises base rate again, government extends price caps, Warsaw launches Hungarian-language campaign to stop Russia

  • Stay updated on the latest news from Hungary by signing up for the free InsightHungary newsletter:

Commission launches conditionality mechanism against Orbán government

This is the first time that this mechanism has been launched in the history of the EU.

The mechanism could be launched against Member States where the EU's financial interests are directly threatened by failures in the rule of law.

According to the Commission, there has been ample evidence over the last ten years that this is the case in Hungary.

According to the official schedule, the Hungarian government will have two months to respond to the allegations and submit proposals to significantly improve the situation.

If the Commission is satisfied with the government’s response, the mechanism will be terminated. If not, they will continue the procedure, which could end with a proposal to the Council to suspend payments in Hungary.

Theoretically, the suspension could reach as much as 40 billion euros, although experts say this scenario is very unlikely. 

The Hungarian government is ready to settle its dispute with the European Commission.

“The letter from the Commission has been read by the government, and there is nothing stopping it from signing the recovery agreement, as the letter only stipulates what has been under discussion with the commission in the last few months,” Gergely Gulyás, the head of the Prime Minister’s office said at a press conference on Thursday.

“The letter from the Commission on the rule of law mechanism is in fact to be welcomed,” he added.

He also said that there were areas in which Hungary could not waiver, like the fact that Hungary must stay out of the Russian-Ukrainian war, however, the EU’s mechanism is by no means connected to the recent Russian aggression against Ukraine.

“It depends only on the European Commission when the Hungarian government and the Commission sign the agreement on the recovery fund, there are no obstacles for Hungary,” Gulyás underlined.

In the Council, the governments of the Member States must support the suspension of money by a qualified majority. Following last weekend's French and Slovenian elections - where leaders opposed to Orbán have been elected - , that majority is likely to emerge.

Viktor Orbán will have the right to ask for a debate on the matter at a prime ministerial level. The procedure can take up to 9 months from now.

All funds awarded since 2021 could be jeopardized.

Exactly how much money the suspension would affect depends on how much damage the EU budget says the EU has suffered as a result of the irregularities in Hungary.

It is certain that all payments awarded from 1 January 2021 onwards will be affected by the suspension: cohesion aid, money for agriculture, and the recovery fund.

Local NGOs have found that in Hungary, one fifth of the total EU funding of the last ten years were attributed to companies belonging to a narrow circle of twelve people, each having excellent relations with the government.

The Hungarian budget would be in great need of EU subsidies. And while this mechanism has just been launched, the government has not had access to the billions in the recovery fund for more than a year, also because the Commission has not approved the Hungarian recovery plan due to the high corruption risks surrounding public procurement.

Hungary's central bank raises base rate to 5.4 pct

The Monetary Council of the Hungarian National Bank (MNB) raised the central bank base rate by 100 basis points to 5.4 percent, MNB said here on Tuesday.

The move came as no surprise and was in line with the analysts' expectations.

MNB increased the base rate by 30 basis points to 0.9 percent on June 22, 2021. Previously, the MNB's base rate had been on hold at 0.6 percent since July 2020.

It has been steadily increasing since then, in line with the growing inflation rate.

According to the latest official data released on April 8, the inflation rate in Hungary stood at 8.5 percent in March, well over the three percent target set by MNB.

MNB also decided on Tuesday to raise the overnight (O/N) deposit rate by 100bp to 5.40 percent and the O/N and one-week collateralized loan rates by 100bp to 8.40 percent.

Following the release of the new interest rate, the Monetary Council of the central bank said that the war in Ukraine has ”constituted a much higher risk than usual" to the inflation outlook.

"The Monetary Council deems it necessary to continue the tightening of monetary conditions and to continue the base rate tightening cycle by taking a decisive step in order to anchor inflation expectations and mitigate second-round inflation risks," it added.

The central bank recently published its latest inflation and GDP forecast a month ago. A forecast of 7.5-9.8 percent has been announced for this year's average inflation rate.

“It is widely believed that price increases have not yet peaked, and inflation may rise further in the coming months. Depending on the maintenance of price stops, we can see a value of over 10 percent in the summer, and we may see a slow decline in the last quarter,” business online portal Portfolio commented on the decision.

The Hungarian government had introduced temporary price caps on staple food and on fuel, measures that contributed to keep prices under control for the population, but if they are to be lifted - in mid May according to earlier announcements - inflation rate could hit new records.

Hungarian government extends price cap on fuel and staple food

The government will extend the price caps on fuel and staple food until July 1, Prime Minister Viktor Orbán said on his Facebook page following Wednesday's government meeting.

"Today we had to decide what to do (about the price caps), we decided to extend our price control measures in both cases, so both the price of fuel and the price of selected food products will remain unchanged until July 1,” Orbán said in a short video message.

“As long as the war lasts, prices will rise, but the Hungarian government cannot watch this process idly,” he added.

“In Hungary, the government is doing everything in its power to protect families from the consequences of rising prices,” he stressed.

On January 12, Orban announced that the prices of granulated sugar, wheat flour, sunflower oil, pork thighs, chicken breast and 2.8 percent cow's milk would be limited from February 1 due to the high inflation rate.

The price of designated products in all stores were brought back to their former levels of October 15 last year.

Initially the price price-stop would take effect between February 1, 2022 and May 1, 2022. The regulation also said that the concerned products must be kept in stock.

Local business portal Portfolio previously calculated that if the price stop were to end, a liter of sunflower oil could cost up to 1,000 forints instead of 720 forints. The price of chicken breast may increase from 1,600 forints to 2,000 forints, and that of pork thighs from the current 1,400 to close to 1,600 per kilogram. While the price of milk would jump from 274 forints to 330 forints.

The government also fixed the price of 95 petrol and diesel per liter at 480 forints on 15 November due to high inflation, and then extended the petrol price-stop from February 15 for another three months, until mid-May. 

According to the latest official data released on April 8, the inflation rate in Hungary stood at 8.5 percent in March, well over the three percent target set by the central bank MNB. The bank originally forecast a 7.5-9.8 percent inflation rate for this year. 

The Polish government launches Hungarian-language campaign to stop Russia

The Polish government wants to break through the "wall of European indifference" about the war with vivid posters and a social media campaign, the #StopRussiaNow campaign has been launched in eight languages, including Hungarian. 

Hoardings with the slogan will be placed in a number of European cities and the campaign will be reinforced in social media, Polish Prime Minister Mateusz Morawiecki said at a press conference at the National Stadium in Warsaw on Saturday. 

He also said that Russian President Vladimir Putin "has prepared a special operation of war crimes and genocide" and Poland wanted the campaign to be "a cry of those who have been brutally murdered in the streets of Ukraine."

The Polish campaign reported that so far 208 children were killed in Ukraine, and 386 children were injured by Russian war criminals.

The pro-Ukraine information and fundraising campaign, called #StopRussiaNow, aims to raise awareness of not only the war, but also invites anyone to take action against it. 

Morawiecki underlined that the news of atrocities in Ukraine had had a short-lived effect in Europe.

"Our partners in Western and Southern Europe want to return to normalcy too soon," Morawiecki noted, adding that there could be no restoration of standard relations with Moscow.

The home page was linked to the Yale University collection, which includes a list of companies that continue to do business with Russia. The list also includes Hungarian companies such as Mol, Gedeon Richter, Rába and Zwack.

Uralkodj magadon!
Új kommentelési szabályok érvényesek 2019. december 2-től. Itt olvashatod el, hogy mik azok, és itt azt, hogy miért vezettük be őket.