EU cautious on Hungary's 'charm offensive' as billions of funds hang in balance -sources

© Reuters. FILE PHOTO: European Union flags flutter outside the European Central Bank (ECB) headquarters in Frankfurt, Germany, April 26, 2018. REUTERS/Kai Pfaffenbach/File Photo

By Gabriela Baczynska

BRUSSELS (Reuters) - The European Commission wants to see more action from Hungary on stepping up anti-corruption safeguards before Brussels agrees to unlock EU funds, EU sources said.

One source called Budapest's efforts to secure funds a "charm offensive" but said there had been no "immediate breakthrough" in talks on the issue last week between EU officials and Hungarian Justice Minister Judit Varga.

The European Commission has been withholding its approval for Hungary to draw on money meant to help lift economies from the COVID-19 pandemic, accusing nationalist Prime Minister Viktor Orban's government of undermining the rule of law.

Ahead of Varga's talks in Brussels last Wednesday and Thursday, Hungary announced that it will create an anti-corruption authority and a working group involving non-government organisations to oversee the spending of European Union funds.

The European Commission said after the meetings that it would consider Budapest's proposals.

Varga told EU officials last week that Budapest's promise to set up a new anti-graft agency should be enough for Brussels to unlock some 6 billion euros ($6.08 billion) in COVID stimulus funds, and refrain from clawing back even more from money earmarked for Hungary from the bloc's 2021-27 shared budget, according to EU sources.

But the sources, familiar with Varga's discussions, voiced caution.

"Let's call it a charm offensive," one EU official said. "But the devil is in the detail."

A second EU official said that Hungary's proposals were a step in the right direction but that implementation was key.

Orban has come under increased pressure to strike a deal with the Commission as a weakening forint exacerbated economic woes in Hungary in recent weeks.

But after years of increasingly bitter EU feuds with Budapest over democratic standards, corruption, migration and LGBTQ rights, a third EU official said: "There is little trust in Hungary."

Hungary had irregularities in nearly 4% of its spending of EU funds in 2015-2019, according to the bloc's anti-fraud body OLAF, the highest among the 27 EU countries by far.

EU lawmakers will likely call on the Commission not to let Hungary off the hook when they debate the state of democracy and fundamental rights in the ex-communist country on Wednesday.

The Commission then has until Sept.21 to assess if the latest proposals from Budapest are enough to ease its concerns.

If not, Brussels would recommend to the other EU countries punishing Budapest under the bloc's "money for democracy" scheme that affects all of the bloc's joint funding worth 1.8 trillion euros in 2021-27.

EU Budget Commissioner Johannes Hahn has proposed that some 70% of EU funding envisaged for Hungary could be at risk, according to a July document published by the Commission.

($1 = 0.9872 euros)