(Bloomberg) -- Hungarian Prime Minister Viktor Orban signed a decree to establish an anti-corruption agency, a potentially bold step to address graft and rule-of-law concerns that have blocked crucial European Union funding.
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The agency will be tasked with intervening in cases where Hungarian authorities have failed to prevent “fraud, conflict of interest, corruption and other illegalities or irregularities” that jeopardize the handling of EU funds, according to the decree published late Monday.
Wielding a new mechanism that allows it to withhold billions of euros in funding, the EU’s executive arm has intensified scrutiny over a broad erosion of rights under Orban, including the independence of Hungary’s judiciary.
The European Commission must decide this month whether to recommend funding cuts against Hungary or close its rule-of-law probe.
Orban is under pressure to act. The premier needs the commission’s sign-off by the end of the year to access most of the 5.8 billion euros ($5.8 billion) earmarked for the nation under the EU’s pandemic recovery fund. Even then, disbursement may hinge on implementing the reforms.
Investors have cited Hungary’s lack of access to the funds as a major factor in the disproportionate selloff in Hungarian assets since Russia’s invasion of Ukraine in February. The forint, which has dropped more than 10% against the euro since then, led gains in central Europe on Tuesday morning.
Hungary has plunged in Transparency International’s Corruption Perceptions Index under Orban and now ranks lowest in the EU after Bulgaria. The watchdog has said graft had become institutionalized under Orban.
Whether the latest steps prove to be a genuine break with Orban’s backsliding -- as opposed to a tactic to seize crucial EU funding -- is to be seen, according to Miklos Ligeti, the legal director of Transparency International in Budapest.
“You can’t eliminate institutionalized corruption overnight by setting up a so-called independent agency,” Ligeti said. “Hungary is full of ‘independent’ agencies and look where it got us.”
The government will file legislation to parliament by the end of the month guaranteeing the independence of the anti-corruption agency, according to the decree. The authority will begin operating on Nov. 21.
Separately, the cabinet will establish an anti-corruption task force by Dec. 1, with an equal number of delegates from the government as well as non-governmental participants, and pledged to make public procurements transparent.
(Updates with commission demands, analyst comment from third paragraph.)
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