Page 10 - CE Outlook Regions 2023

popularity, yet there is a risk of a snowballing effect if protests continue
in 2023.

Without a comprehensive wage settlement, the country’s education
sector, already facing huge staff shortages, could be crippled in the
short term. Hungarian teachers have the lowest wage among the 38
OECD countries.

Hungarian local governments, facing an energy crisis, will rely on state
subsidies to survive in 2023. Fidesz has centralised state administration
and curbed the independence of municipalities in the last 12 years.
Local governments run by the opposition fear that energy subsidies will
not be handed out evenly as happened during the pandemic.

Orban has found himself increasingly isolated in the EU with his
pro-Russian stance and frequent use of the veto, blocking a string of EU
initiatives linked to helping Ukraine. Orban’s long-term allies from the V4
countries have abandoned him and it will take a lot of work to rebuild
confidence. Budapest has also angered allies for holding up the
ratification of Finland and Sweden’s Nato membership, using that as
blackmailing power to gain access to EU money.

Hungary avoided the worst-case scenario of losing vital EU funds in a
last-minute agreement in early December. EU member states struck a
deal securing Budapest's approval for the 15% global minimum corporate
tax rate and financial aid for Ukraine in 2023 in exchange for agreeing to
pay out the funds, totalling 8-9% of the country’s GDP, but under the
scrutiny of the ongoing conditionality mechanism, launched for the first
time against a member country.

Hungary becomes the last country in the EU to gain access to the
€5.8bn post-covid recovery fund (RRF) 15 months after submitting its
plan, but the payout is linked to meeting 27 “super milestones” set by
the European Commission for improving transparency of public
procurements and judicial reforms. The EU has kept €6.3bn from
Cohesion funds frozen, or 55% of the total Cohesion funds from the
2021-2027 EU budget, until the country lives up to its commitments.
This is slightly below the EC's initial €7.5bn proposal, which deemed
Hungary’s efforts in the autumn to tackle corruption and improve the rule
of law as insufficient.

The government expects EU money to start flowing in from Q2 2023 at
the earliest, but Hungary’s premier has little to celebrate as the country
will remain under close scrutiny and future EU transfers could be
withheld if compliance with 27 super milestones is not guaranteed,
leaving the government scrambling to find other options to finance a
widening twin deficit. It remains to be seen whether the government will
request the €9.8bn credit leg of the RRF package.

10 CE Outlook 2023 www.intellinews.com