(Bloomberg) -- The European Union's rift with the regime of Hungary's Prime Minister Viktor Orban was laid bare in a cutting letter cataloging allegations of corruption and violations of the rule of law, raising the risk that the nation may ultimately lose billions of euros in crucial funding.
The European Commission's missive, sent to Budapest on Wednesday, is striking for both its level of detail and its sweep, linking the erosion of the rule of law during Orban's 12-year rule to graft, according to a person familiar with the content of the letter who asked not to be identified because the content isn't public.
The text of the letter, which is dozens of pages long, cites “serious irregularities such as conflict of interest, fraud and corruption, indicative of breaches of the principles of rule of law.”
The document arrived after the EU's executive approved on Wednesday the triggering of its new rule-of-law mechanism, which allows the bloc to eventually cut funding to members that flout its values in ways that also undermines the community's financial interests. Hungary is the first country targeted under what's seen as a belated effort by the world's largest trading bloc to hold renegades to account in the club of democracies.
“The continuation of the described facts over more than ten years indicates that there is a continued mismanagement of EU funds and a persistent failure by the Hungarian public authorities to effectively protect the financial interests of the Union,” according to the letter, signed by Budget Commissioner Johannes Hahn on behalf of the EU executive.
Read more: EU Triggers $42 Billion Budget Fight With Hungary's Orban
At stake is more than 40 billion euros ($42 billion) in EU funding for Hungary in the period through 2027. The commission is already withholding Hungary's 7.2 billion-euro share of its pandemic recovery fund on graft concerns, a move Orban's government has repeatedly alleged was politically motivated due its crackdown on LGBTQ rights.
The EU letter, which arrived in Budapest weeks after Orban won a fourth consecutive term in elections, also highlights concerns about the willingness to fight high-level crime and about the independence of parts of the judiciary. Hungary ranks 73rd in Transparency International's latest Corruption Perception Index, lower than any EU member except Bulgaria.
Hungary is in intensive talks with the commission to address its concerns, including the relatively high-level of single-bid tenders in public procurements, Cabinet Minister Gergely Gulyas told reporters on Thursday. He said the two sides were close to agreement, which he said should open the way for the release of Covid-recovery funds.
Given the laundry list of EU concerns, that may be wishful thinking.
Negotiations may take “at least six to 12 months” and Hungary risks “major cuts” in EU funding, credit rating company Scope Ratings said in a report on Friday. The standoff may “define relations between the EU and Hungary over the coming years,” it said.
Unless Hungary manages to address the commission's points, the file may ultimately be sent to the summit of EU leaders where member states would need a qualified majority to implement funding cuts.
“The ongoing negotiation process is expected to be lengthy and protracted,” Scope Ratings said.
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