|2022/11/29 / Erste Group Research|
Hungary: EC to block some Cohesion funds
In the dispute between Hungary and the European Commission, it should be made clear at the start that there are two parallel processes underway. The first is about cohesion funds, which are subject to being frozen. Cohesion funds are part of regular EU funds within the 2021-2027 budgeting period and have been assigned to every country. Secondly, there is a Recovery and Resilience Facility (RRF funds) that comes on top of regular EU funds within the budgeting period and are granted independently of regular EU funds. RRF funds are divided into grants and loans. Both Hungary and Poland have had the Cohesion funds allocated. Furthermore, Poland has had its Recovery Plan accepted, but needs to meet milestones to receive payments. Hungary is still waiting for its Recovery Plan to be accepted in order to have access to RRF. If it is not approved by the end of this year, 70% of RRF allocations would disappear forever for Hungary.
Part of the Cohesion funds can be frozen until the situation is solved. This dispute could go far beyond the year-end, but if progress is reached, the funds can be unfrozen later. In the dispute over having the Cohesion funds frozen, EUR 7.5bn is at risk. It should be kept in mind that not all funds will be blocked. This EUR 7.5bn is approx. 30% of the EUR 22.5bn in Cohesion funds granted to HU in the 2021-2027 budgeting period.
Hungary should be able to access the remaining EUR 14-15bn part of the Cohesion funds. The Commission has to approve the so-called Partnership Agreement at first, but in principle, it would not be blocked by the Commission and Council's suspension decision. In addition, a significant amount of agricultural funds were approved by the EC in November. Therefore, more than half of the available funds (graph below) are secured for the country. Furthermore, at this point, Hungary is still smoothly receiving payments from the previous 2014-2020 budget. Hungary is still waiting for approx. EUR 5bn altogether from the previous budgeting period, of which EUR 3.5bn is expected for 2023.
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|Author||Erste Group Research|
|Product name||CEE Economies Special Report|
|Topic in focus||FX, Macro/ Fixed income|
|Economy in focus||Hungary|
|Currency in focus||Hungarian Forint|
|Sector in focus||-|
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