EXCLUSIVE Worried by ‘systemic’ fraud, EU ties recovery funds to Hungary procurement reform

Videoconference of EU leaders to discuss COVID-19
European Council President Charles Michel chairs a video conference of the members of the European Council on COVID-19 in Brussels, Belgium January 21, 2021. Olivier Hoslet/Pool via REUTERS/File Photo

BRUSSELS, Feb 8 (Reuters) - The European Union’s executive has told Hungary to reform its public procurement laws to curb systemic fraud before billions of euros from the bloc’s new pandemic recovery fund are made available, according to an internal document seen by Reuters.

The European Commission is managing the 750-billion-euro stimulus scheme and has already told several EU states their proposals for spending their shares must be improved.

The bloc wants outright changes to Hungary's public procurement laws, according to the Jan. 26 Commission document laying out specific legal changes required of Prime Minister Viktor Orban's government.

"Competition in public procurement is insufficient in practice," said the document, citing "systemic irregularities" that "led to the highest financial correction in the history of (EU) structural funds in 2019".

Asked to comment on the Commission's call for reform of its public procurement laws, the Hungarian government, which has battled with EU authorities over rule of law issues, said it was working on a response.

Budapest is due to receive nearly 6.3 billion euros in free grants from the recovery scheme if its spending plan is proposed by an end-April deadline and then accepted by Brussels and other EU countries.

The Commission document called specifically for improved data transparency and accessibility, which it argued would lead to a fairer and more open procurement process.

Hungary had irregularities in nearly 4% of its spending of EU funds in 2015-2019, the bloc's anti-fraud body OLAF said last year, compared to an EU average of 0.36% and much worse than the second-poorest score of 0.53% for Slovakia.


OLAF said in 2016 that the EU should ask Budapest to repay more than 280 million euros in funding to build a metro line in the Hungarian capital due to "fraud and possible corruption".

In 2018, Reuters investigated a tourism project around Lake Balaton, revealing how it was channelling public funds - including EU subsidies - to Orban's friends and family. https://www.reuters.com/investigates/special-report/hungary-orban-balaton/

"It would be completely irresponsible of the Commission to allow these necessary funds to be managed by a system that lacks the necessary anti-fraud rules in place," Transparency International's Nicholas Aiossa said on Monday.

Orban has disputed OLAF's findings, telling Reuters in September: "I don't accept the point that Hungary is more corrupt than Austria or Germany or Denmark".

The Commission document listed legal changes needed to introduce more transparency, real competition between bidders and accountability in Hungarian public procurement to avoid fraud and the need to recuperate misspent aid.

It said Hungary had one of the highest single-bidding rates in the EU, leading to systemic overpricing, and that Hungarian laws on conflict of interest were marred by loopholes.

"The Commission has been pushing for a better analysis and control of public procurement risks for many years," the document read. "But there seems to be political opposition at the highest level. These measures are simple to implement from a technical perspective and fit into the digitalisation objectives."

As France warned that back-and-forth between the Commission and EU countries risked delaying spending of the recovery funds, a senior Commission official said more work needed to be done.

"The overall balance between reforms and investments still needs to be fine-tuned," the official said on Monday, adding countries needed to show how they would hit spending targets for climate projects and digital transition.

Germany pushed back against Commission suggestions that it should reform its pension system, a sensitive matter in an election year.

Many other countries are seeking EU funds to take their public administration, health and school systems online amid the pandemic, which has thrust the 27-country EU's economy into a record recession.

Reporting by Gabriela Baczynska; editing by Mark John and Jon Boyle

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