Addressing democratic backsliding in Hungary: Biting intergovernmentalism, made in Berlin

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In the Berlin Perspectives series, the Institut für Europäische Politik (IEP) presents analyses of Germany’s European policy to an English-speaking audience. The authors analyse German positions on current debates and provide policy recommendations based on their findings.

The latest policy brief by York Albrecht is re-published on this blog in an extended version. You can find the original text on the IEP website.

“For a long time, the other member states neglected Hungaryʼs democratic regression. The ʻZeitenwendeʼ must be a window of opportunity for Germany and its allies to protect liberal democracy.”

Since Viktor Orbán took office as Hungary’s prime minister in 2010, his Fidesz-led government has systematically dismantled electoral fairness, judicial independence and media freedom. With these violations of fundamental liberal-democratic standards and its repeated use of vetoes in the European Union, Budapest also openly challenges the EU’s identity as a community of rights and values and undermines its capacity to act.

This poses substantial challenges for Germany, which must balance the interests of German companies that heavily invested in Hungary and its foreign policy agenda. Berlin has tried to pursue a more values-based foreign policy in recent years, and it had to give up on its concept of Wandel durch Handel (change through trade) since Russia’s full invasion of Ukraine in February 2022.

What does the Zeitenwende that Chancellor Olaf Scholz proclaimed immediately after the invasion imply for addressing the threat that Hungary poses to core values of Germany and the EU? This policy brief proposes that one promising avenue for Berlin is to increase cooperation with like-minded EU members, as such ‘biting intergovernmentalism’ can enable it to do more to protect the rule of law in the EU.

The problem: democratic backsliding in Hungary

The domestic power of Orbán and Fidesz is predominantly based on three pillars.

First, the electoral system has been redesigned to keep Fidesz in power. After the ratification of the new constitution in 2012 without any real public consultation, referendum or parliamentary deliberation, the party drafted a new election law, which since “has handed Orbán his two-thirds supermajority in three elections”. Elections are accompanied by the gerrymandering of parliamentary constituencies, misleading ballots to confuse voters and ‘voter tourism’ allowing citizens to register anywhere in the country to tilt close districts.

Second, the government controls the public and private media. Since 2018, media entrepreneurs close to Orbán have transferred their ownership of newspapers (including all regional ones), broadcasting stations and other print and online outlets to the newly established Central European Press and Media Foundation (KESMA), whose board is controlled by Orbán allies. The parliament has appointed Fidesz-friendly members of the governing body for the public service broadcasting media. And state advertising is used to subsidize government-aligned media. Moreover, the space of civil society organisations and academic freedom are massively restricted.

Third, the government consolidates its power through state-sponsored corruption and nepotism. A new economic elite close to Orbán has emerged, living off public procurement contracts. Often, EU funds end up in the pockets of “Orbán’s oligarchs”, including his son-in-law. Fidesz is working to nationalize strategically important business sectors, ousting foreign companies including from other EU members in blunt violation of the Single Market regulations. German companies operating in Hungary lament increasing pressure from new special taxes, search warrants and even the threat of expropriation.

Pressuring the EU with veto threats

In addition to the state capture by Fidesz, Hungary’s behaviour at the EU level challenges its allies. In December 2022, Orbán used the country’s veto to block €18 billion in aid for Ukraine and EU support for a global corporate tax rate as leverage to obtain the release of frozen EU funds for Hungary. He repeated similar manoeuvres in May, October and November 2023.

More recently, Hungary threatened to block any sanctions on Russia’s nuclear sector as the two countries are collaborating in the construction of two new nuclear reactor blocs at the Paks site. Additionally, the Hungarian parliament has to date repeatedly postponed the ratification of Sweden’s NATO accession.

The German response: longstanding close contacts with Fidesz

Germany’s stance towards Hungary under Orbán since 2010 has been ambiguous and has gone through three phases.

The liberal-conservative coalition government in office between 2009 and 2013 was characterized by close contacts and ideological proximity with the Fidesz government, especially regarding fiscal austerity policies after the 2008 financial crisis. Close ties between Fidesz and the German CDU/CSU (EPP) can also be traced back to the “political father-son relationship” between Orbán and former chancellor Helmut Kohl.

Rifts between Berlin and Budapest emerged during the migration crisis in 2015, in which Orbán and Chancellor Angela Merkel took opposing positions. Furthermore, Hungary’s repeated vetoes in EU foreign policy votes generated controversy in Germany. Nevertheless, Bavaria’s CSU invited Orbán to confidential meetings until he opposed the party’s Manfred Weber’s bid for running as the Spitzenkandidat of the European People’s Party at the European elections 2019. This conflict ultimately led to Fidesz’s withdrawal from the EPP in 2021.

A more critical stance under the traffic-light coalition

The most recent phase started when Germany’s ‘traffic-light’ coalition government took office in 2021. The SPD (PES), FDP (ALDE) and Grüne (EGP) have been markedly more critical of Hungary. The government’s stricter stance on defending European values was reinforced by Russia’s full-scale invasion of Ukraine. The war added a geopolitical impetus to the debate in Germany on Hungary’s democratic regression because Orbán is the EU head of government closest to Russia’s President Vladimir Putin, as their meeting in Beijing in October 2023 reiterated.

Despite this, Germany is still Hungaryʼs most important trading partner. In 2022, their bilateral trade reached an all-time high of €65.5 billion. German companies have invested heavily in the country due to low wages, one of the lowest corporate tax rates in the EU and an education system similar to the German one. Thus, Berlin must balance business interests with the protection of EU law and the Union’s capacity to act on foreign policy matters.

The EU response: developing the rule of law toolbox

At the EU level, the democratic backsliding in Hungary (and Poland) led to the development of a ‘rule of law toolbox’. This complements the various infringement procedures opened by the European Commission against Hungary, as well as the procedure under Article 7 of the Treaty on European Union (TEU) that since 2018 has been stuck in the European Council, where Hungary and Poland protect each other. Orbán could lose this protection due to the probable change of government in Warsaw, which is why he is now trying to woo the newly elected Slovakian Prime Minister Robert Fico, who has a similarly pro-Russian stance.

The toolbox contains instruments such as the Rule of Law Dialogue in the Council, the EU Justice Scoreboard and the Rule of Law Report. Since 2021, it also contains the Conditionality Regulation that allows the European Commission to use its ‘power of the purse’ to protect the EU budget from violations of fundamental values by a member state. The Common Provisions Regulation that accompanies the budget also enables the European Commission to freeze funds for member states, for example, from its Cohesion Policy. Altogether, Brussels has suspended at least €28.7 billion for Hungary, which deeply affects Orbán’s regime and the country’s economy.

Release of EU funds in exchange for approval of Ukraine aid?

The Commission recently adopted the revised Hungarian Recovery and Resilience Plan (RRP) and announced its intention to disburse almost one billion Euros to Hungary from the REPowerEU instrument, which aims to make the energy supply of member states more sustainable. The instrument was introduced in mid-2022 in view of the massive rise in energy prices across Europe as a result of the Russian war of aggression against Ukraine. In order to access the funds, the member states must add REPowerEU chapters to their RRPs.

This now allows the Commission to perform a delicate balancing act between Hungary and the other member states. On the one hand, it can propose releasing the REPowerEU funds that are not linked to rule of law requirements. On the other hand, it can simultaneously insist on the implementation of the so-called 27 “super milestones” according to which Hungary must, among other things, strengthen the independence of the judiciary to receive funds from the Recovery and Resilience Facility. The Commission’s action can therefore be interpreted as an attempt to avert Orbán’s announced veto against further aid for Ukraine in exchange for EU funds. The Council still has to approve the Commission’s decision.

Pressure from Brussels alone is not enough

Germany’s role in developing the toolbox was ambiguous. For a long time, it had a rather lax attitude to democratic backsliding in Hungary due to their extensive political and economic ties. Germany was a driving force behind linking EU funds and observance of the rule of law, yet its Council Presidency in 2020 contributed to watering down the legislative proposal for doing so in order to reach an agreement among member states.

In an attempt to unfreeze the funds, Hungary’s government has made changes to the country’s judicial system and of public-procurement procedures. However, as an analysis by the Hungarian Helsinki Committee shows, these are not sufficient to restore judicial independence and to tackle systemic, state-sponsored corruption. Meanwhile, Orbán uses Brussels as a scapegoat for high inflation rates and low wages. The European Commission’s pressure alone is unlikely to make him curb his power.

A possible solution: biting intergovernmentalism

While the European Commission is the ‘guardian of the treaties’, the member states can also contribute to protecting EU values. In 2021, the parliaments of Denmark and the Netherlands called on the countries’ respective governments to file a lawsuit at the Court of Justice of the EU (CJEU) against Poland due to its curtailment of judicial independence and LGBTIQ+ rights, though they were not heeded. In December 2022, 15 member states, including Germany, joined the European Commission as third parties when it brought in front of the court an infringement procedure against Hungary regarding its ‘LGBTIQ+ law’.

These two cases show the increased willingness of member states, or at least part of their political scene − to defend European values. They are examples for what Dimitry Kochenov termed ‘biting intergovernmentalism’ – a process in which groups of states act in ‘coalitions of the willing’ within the EU to defend its core values. The most prominent example is the informal Friends of the rule of law group, consisting of Belgium, Denmark, Finland, Germany, Luxembourg, the Netherlands, Portugal and Sweden. France also supports the group’s actions on a case-by-case basis.

Member states can take each other to the CJEU

The Friends of the rule of law can act through two strategies. First, they can join infringement procedures opened by the European Commission to express their political support based on Article 40 of the CJEU’s statute. Second, they can refer to Art. 259 TFEU. According to the article, a member state (or more) that considers that another has failed to fulfil an obligation under the treaties, such as respecting the values in Art. 2 TEU, may bring the matter before the CJEU. Using Art. 259 TFEU has three advantages: it can enable swift EU-level action, it avoids the unanimity gridlock of Art. 7 TEU, and it increases the pressure on the European Commission to act more decisively.

To address the autocratization of Hungary, Germany should make more use of such possibilities for member states to protect fundamental EU values. In its coalition agreement, the traffic-light government vowed to advance structural EU reforms, including with other member states. This could also be the basis for coordinating legal efforts against Hungary with the Friends of the rule of law and other like-minded member states.

Three pillars for action 

A biting intergovernmentalism ‘made in Berlin’ should be based on three pillars.

• First, Germany should strengthen the intergovernmental network of the Friends of the rule of law. More contacts among officials and diplomats can help to sound out national sensitivities that could prevent legal action against Hungary and develop strategies to mitigate them. Eventually, this could help to escape the collective action trap that keeps states from invoking Art. 259 TFEU.
• Second, Germany should be smart and creative regarding its biting intergovernmentalism. The debate on the rule of law in the EU is not only legal but also inherently political. Rather than its immediate application, the threat of using Art. 259 TFEU could already serve as political leverage against Orbán. A united opposition of member states would increase the pressure on Hungary’s prime minister and demonstrate his isolation, including on the matter of the frozen EU funds.
• Third, Germany addressing socio-economic convergence inside the EU would help as this concerns a split among member states that matches the one on defending the rule of law. The current defenders consist of the most prosperous Nordic and West European EU members whereas the less prosperous Mediterranean, Central and Southeast European ones are missing. Germany also should use Hungary’s crackdown on foreign companies as a cause to get member states behind common legal action. Overall, it should use its influence in the EU to promote and extend the network of rule-of-law defenders because a geographical schism on fundamental values would paralyze the whole bloc.

For a long time, the member states neglected Hungary’s democratic regression. Russia’s aggression against Ukraine changed this. The subsequent geopolitical impetus given to the EU’s rule-of-law crisis presents a window of opportunity for Germany and its EU allies to protect liberal democracy.

York Albrecht is a Research Associate at Institut für Europäische Politik (IEP) in Berlin.

Picture: Heroes Square in Budapest: Shawnn Tan [Unsplash License], via Unsplash; portrait York Albrecht: Marlene Pfau [all rights reserved].