The European Commission’s recent decision to unfreeze up to €10.2 billion in recovery and resilience funds for Hungary, with no strings attached, has sparked controversy. This move comes amidst longstanding concerns over Hungary’s democratic erosion and mounting criticisms from civil society regarding the government’s misuse of EU funds. In this piece, András Lukács reports from Budapest as a guest author for META.
Views expressed in this article belong to András Lukács, president of the Clean Air Action Group (CAAG), a national federation of Hungarian environmental NGOs.
Hungary is to receive the largest injection of public money for the green transition in its history. Yet the poor state of the rule of law and the dismal record of misuse of funds in the past foreshadow a rather worrisome scenario.
Across Central and Eastern European countries, civil society organisations in collaboration with the European Environmental Bureau, have been assessing EU-funded projects dedicated to climate and environment. The aim? Creating a database with 280 examples that help to draw recommendations, based on bad and good stories, on the efficient use of EU funds towards climate neutrality. As a historic recipient of EU funds and a green transition laggard, this is a critical issue for the region of Eastern Europe.
The Hungarian case is a striking example of malpractice. Civil society watchdogs in Hungary believe that the EU institutions can and should do more to ensure EU money ends up in transformative projects for the green transition and not in “business as usual”.
Democratic guarantees
The cornerstone for receiving EU funds must be a robust legal and institutional framework within the recipient country. Without this bedrock, even the noblest intentions can unravel in a tangle of inefficiency and contradiction.
In the case of Hungary, a nation grappling with democratic erosion, economic corruption, and environmental degradation, neither the protection of EU values nor the bloc’s financial interests are guaranteed – as the European Parliament has recently denounced.
Policy coherence
The European Commission must stand firm in its negotiations with member states, insisting on green reforms that align with environmental policy objectives before funds are disbursed.
The Hungarian government have often used their own public money to finance projects that contradicted the aims of those funded by the EU budget. For example, the EU is financing investments into renewable energy, trains and public transport while the national government, at the same time, is subsidising lignite mining, car factories and highways.
National governments, which manage EU public funds, must be held accountable for not undermining the objectives of EU funding in parallel.
This P+R parking lot for 1500 cars was constructed on a green zone on the outskirts of Budapest using EU funds, despite strong protests from local residents.
Who is the beneficiary?
Discretionary public funding to private entities, which can lead to market distortions and corruption, must be prevented.
No public money should be used to correct market failures in case these failures could be corrected by applying ‘the polluter pays’ and ‘the user pays’ principles. For example, subsidising renewable energy while the users of fossil fuels do not pay the full costs of their use, including the environmental costs, means that taxpayers pay to improve the competitiveness of both fossil fuel consumption and renewable energy, which results in reduced competitiveness of renewables.
Long-term approach
In certain instances, one-time financing can prove to be more detrimental than beneficial.
Numerous cases exemplify Hungary’s shortsightedness in utilising EU funds. For instance, while new bicycle roads have been built, several of them became unusable due to the lack of funding for maintenance. The President of the State Audit Office, László Domonkos, speaking about the results of their examination of the use of EU funds by local governments, stated: “When they implement an investment, they do not consider how much it will cost to maintain and operate it during the next 10 to 20 years. Regarding the whole period, it might be that the EU funds cause more harm than good.” This inefficiency leads to a significant waste of resources, compounded by the lack of trained personnel as a result of insufficient maintenance financing. Establishing maintenance obligations and ensuring their funding during tendering processes are vital for the long-term efficacy of EU funding.
The opportunity cost of public funding should also be considered, though this aspect is often overlooked in practice. For instance, enhancing the energy efficiency of residential buildings should be prioritised, given its critical role in safeguarding the health of citizens and the economy against the escalating frequency of extreme weather events and energy supply insecurities. These projects ought to take precedence over less cost-efficient investments with fewer time constraints.
More and better control
Stricter monitoring and control mechanisms over EU-funded projects are imperative.
The relevant authorities must be independent and significantly strengthened. Unfortunately, in Hungary, this is not the current reality: instances of rent-seeking are often tacitly supported by authorities, with permitting procedures rushed and pushed through, disregarding potential risks of damage, all in the name of meeting deadlines and ensuring EU funding is not lost.
Furthermore, beneficiaries must be held accountable through regular progress reports and rigorous audits. Random, yet more frequent and periodic checks should be conducted to verify the authenticity of reported activities. In cases of fraudulent activities or fund misuse, there must be more effective legal mechanisms in place to recover misappropriated funds. Establishing a transparent, independent online platform would enable citizens to view, monitor, and report suspicious activities related to these projects.
Civil society organizations (CSOs), acting as grassroots independent watchdogs, need to be empowered to meaningfully engage in the planning and implementation of EU-funded projects. In Hungary, only a few CSOs are actively involved in navigating the complexities of EU and national funding policies, and their capacity and financing to do so is extremely limited. This not only hampers effective action but also undermines the credibility of CSOs’ involvement, casting doubts from other stakeholders, particularly authorities, about their seriousness.
Moreover, the capacity of investigative journalism organisations must be substantially augmented to enable them to report on potential errors and mismanagement before irreversible environmental damage or financial losses occur.
Municipalities: key actors
At the local level, municipalities emerge as champions of transformative change.
Local governments exhibit strong commitment and embrace an integral cross-sectoral, territorial, and community-focused approach. For example, in the town of Enying, collaborative efforts between the municipality and various local stakeholders facilitated the effective use of EU funding for blue-green infrastructure projects. This initiative not only enhanced the local climate but also expanded recreational and cultural opportunities for the residents thanks to the participatory process.
Unlike larger administrative units, which often operate in silos, municipalities are deeply embedded in local society and possess a keen awareness of local natural assets. However, the efficiency of cooperation can vary among municipal leaders, as success hinges on their level of commitment to environmental best practices and the socio-economic welfare of their communities. Evaluating and enhancing these skills and competencies should be prioritised prior to the disbursement of EU funds.
Nature-based solutions
Small-scale and nature-based projects should be favoured over large developments and constructions.
To prevent unnecessary and oversized developments, the worthiness of projects should be pre-approved by an independent professional body. It’s crucial to avoid certain types of “trendy” projects, such as reservoirs, playgrounds, and viewing towers, from being disproportionately favoured in receiving EU funding. This prevents rent-seeking individuals from implementing projects regardless of their true necessity and environmental impact.
In conclusion, the reflections above underscore the necessity for substantial changes in the use of public funds to achieve the EU’s environmental, social, and economic goals. The Hungarian case serves as a vivid example, highlighting the imperative for the EU to strengthen its vigilance and conditionality if taxpayers’ money is to be used to propel, rather than hinder, the transition towards climate neutrality.
