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The European Union is running out of patience for Hungary to come in line with the bloc's democratic norms and rule-of-law values. The ex-communist country of nearly 10M people is accused of systemic irregularities in judicial independence, weaknesses in constitutional and electoral systems, and deficiencies in anti-graft measures. EU legislators last week even voted to declare that Budapest was no longer a "full democracy" under the so-called "conditionality mechanism" and have since threatened to freeze €7.5B in funding unless it takes action to stamp out fraud and corruption.

Quote:

"It's about breaches of the rule of law compromising the use and management of EU funds, we cannot conclude that the EU budget is sufficiently protected."

                                                                            - EU Budget Commissioner Johannes Hahn.

Hungary, which joined the EU in 2004, will have one month to respond to the bloc's new ruling, though the country's parliament is expected to vote this week on a series of laws aimed at easing the conflict. EU members will also have three months to assess the Commission's recommendation and could limit any punishment if they find Budapest's actions are credible. Up until now, the bloc has treaded carefully to win Hungary's assent on major decisions, but if things go haywire, Hungary could even lose its right to vote in the Council of the European Union.

Outlook: The EU has been already shaken by an unprecedented energy crisis from the war in Ukraine, shortly after the United Kingdom formally left the bloc in 2020. Compounding the problems are populist Prime Minister Viktor Orban's cozy relationship with Vladimir Putin - and his blocking of further sanctions on Moscow - which could hamper the EU's ability to respond to the war. Hungary has routinely blocked EU decisions ranging from votes on a global minimum corporate tax to policies surrounding Ukraine's integration into the West. Other recent tensions that have surfaced include the $5.8B earmarked for Hungary's COVID-19 recovery fund, which has yet to be signed off by Brussels due to corruption concerns over Budapest's spending plans.

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