The European Commission triggered the new conditionality mechanism against Hungary on April 27, marking the first time it has been used against a member state. The Commission cited Hungary's systemic irregularities and deficiencies in the management of EU funds and its lack of anti-graft measures.

The EU's executive body sent a letter to Hungary formally activating the conditionality mechanism, which could result in the suspension of the country's European Union funding, Vice-President for Promoting the European Way of Life Margaritis Schinas announced on Wednesday.

The Hungarian government has received a notification letter from the European Commission about triggering the rule of law procedure. Budapest has two months to reply to concerns and propose remedial measures.

The formal letter sent to Hungary essentially lists the shortfalls in public procurement, the high share of single-bid procedures, the failure of the authorities to prosecute corruption, a lack of transparency in the distribution of EU funds and sloppy auditing of accounts. In short, it is about the state's complicity in misusing EU money, independent media summed said.

These problems have existed in Hungary for more than 10 years (Orban took power in 2010) and that, until now, the Hungarian government has not provided a satisfactory solution, but the European Commission now has the appropriate instruments, Margaritis Schinas told reporters.

Legal barriers to launching the rule-of-law mechanism, designed to protect the use of EU money, were cleared in early 2022 when the EU’s top court turned down the appeal of Hungary and Poland.

Foreign ministers of Germany, Denmark the Netherlands and Sweden first proposed in 2013 to link the payout of EU funds to respect for rule of law principles. Although it was not set out clearly, the mechanism, drawn up later under the presidency of Jean-Claude Juncker, was mainly targeted at Hungary.

Prime Minister Viktor Orban in 2018 threatened to veto the EU’s budget if such a mechanism was to come into effect. Two years later he almost paralysed the approval of the EU’s budget and the Next Generation EU fund at the height of the pandemic when member states agreed to linking payout of EU funds to meeting democratic values. A later compromise agreement allowed Hungary and Poland to challenge the decision in the European Court of Justice, a decision that went against them at the start of this year.

The rule of law mechanism could come to an end if the Commission is satisfied with the government’s response. If not, they will continue with the procedure, which could end with a proposal to the European Council to suspend payments to Hungary. That decision needs a qualified majority. In the wake of the Slovenian elections, this majority is likely to be reached.

The procedure could last five to nine months, pending a response from the Orban cabinet.

All payments granted from January 1, 2021 could be affected by the suspension: cohesion aid, money for agriculture and the money from recovery fund. The EU has yet to approve Hungary's RRF plan.

The government will study the Commission’s notification and communicate its view on Thursday, cabinet chief Gergely Gulyas commented after the announcement. 

Justice Minister Judit Varga said Hungary will respond within the time limits and recited some talking points and campaign slogans unrelated to the topic, such as "Hungary must stay out of the war", or we "will protect our children from the gender lobby".

EU officials have denied that the controversial anti-LGBT legislation has anything to do with triggering the rule of law mechanism.