EU to Back Funding Cuts for Hungary on Orban Graft Concerns

(Bloomberg) -- The European Union’s executive arm plans to recommend cutting funding for Prime Minister Viktor Orban’s administration on concerns about widespread graft in Hungary, according to senior EU officials.

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The European Commission aims to formalize its assessment on Sunday, said the officials, who asked not to be named because the position hasn’t been officially finalized. EU governments will then make the final decision within three months and a qualified majority of member states will be required for the executive’s proposal to take effect.

The forint fell as much as 1.1% against the euro to the weakest level in a week. Investors have cited the uncertain outlook for EU funds as contributing to a disproportionate selloff in Hungarian assets this year.

Hungary is the first country to be subjected to a probe under new rules that allow the EU to penalize members that undermine its financial interests. The commission has spent months investigating the erosion of the rule of law during Orban’s more than a decade in power.

“Even if unfortunately I am not in a position today to report back any positive developments, I do hope that the ongoing procedure will give the Hungarian authorities the opportunity to provide adequate and suitable responses to the concerns voiced,” EU Justice Commissioner Didier Reynders told the European Parliament on Wednesday.

Earlier, commission President Ursula von der Leyen told the lawmakers in an annual address that she had a “duty” to protect the rule of law and to “eradicate corruption” inside the EU.

Orban’s cabinet, which has lost access to the bloc’s funding pending the outcome of the probe, is hoping to tap more than 40 billion euros ($40 billion) in EU financing through 2027. It has recently offered to set up an anti-graft agency and to amend a number of laws including on public procurements to allay the concerns of the EU executive.

The commission plans to suggest that EU leaders give Orban time to make good on his pledges to rein in corruption, according to one of the officials. Hungary will have one month to act on the EU executive’s recommendations but that deadline can be extended. A final decision must be made within three months.

Budapest-based Nepszava newspaper reported the developments earlier Wednesday.

(Updates with Reynders, von der Leyen from fifth paragraph)

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