EU funding has been increasingly important to Hungary since 2016

Multinationals should be aware of heightened political and economic risks in the region in H1 2024

Multinationals operating in Hungary should monitor the growing discourse between Brussels and Budapest closely, with EU threats expanding to removal of already-committed funding, in addition to the continual freezing of Cohesion Funds. If these threats materialize, a significant deterioration from our base case for Hungary can be expected throughout 2024.

B2Gs would be particularly vulnerable in this eventuality. Amid already-constrained fiscal spending and surging debt levels, public spending would be likely to be impacted.


  • Since his re-election in 2022, President Viktor Orbán has been increasingly confrontational with the EU. In October 2023, this confrontation came to a head surrounding the EUR 50 billion Ukrainian Aid package, which had support from 25 out of 27 member countries—blocked only by Slovakia and Hungary.
  • The EU has threatened to sever vital EU funding to Hungary, expanding from the already frozen EUR 10 billion in Cohesion Funding because of rule-of-law concerns, to an additional EUR 6 billion marked for 2024.
  • The EU offered a last-minute deal on January 31 to Hungary ahead of the February 1 summit on Ukraine aid, which would entail annual reviews of EU aid sent to Ukraine but falls short of Hungarian demands, as it excludes the option to veto funding on an annual basis. The option to veto funding on an annual basis would allow Hungary leverage to ensure future funding is paid, which other EU nations have called blackmail.
  • Any punitive action from the EU is likely to be enacted in H1 2024 ahead of European elections, where an expected increase in Eurosceptic MEPs elected will weaken the EU’s negotiation position.

Our View

We remain optimistic that Hungary will eventually submit to EU demands due to domestic political pressure, but President Orbán’s government has previously shown unpredictability. Risks thus remain elevated against the base case ahead of EU parliamentary elections in June 2024.

In December, a summit was held over a symbolic invitation to Ukraine to start formal negotiations on EU accession, alongside hopes of approving said aid package. The EU adopted a carrot-and-stick approach, approving EUR 10.2 billion in frozen Cohesion Funding to Hungary two days before the summit in hopes of coercing Hungary into voting with other member states and halt the veto of Ukrainian aid approval. Despite this, Orbán doubled down on his veto, but did not block the symbolic invitation, which in an interview with state radio the following day expressed how Budapest would be able to block accession proceedings down the road if required.

Following a failure to appease Hungary with unlocking frozen funding, the EU has since chosen to take a more punitive approach, announcing ahead of the February 1 summit in which Ukrainian aid tops the agenda once more, that already-approved Cohesion Funding could be redacted under rule-of-law concerns if Hungary continues to block aid. In addition to this, a group of MEPs launched a resolution, which was successfully passed, calling for member states to launch Article 7.2 proceedings, a prerequisite for stripping Hungary of its voting rights in the EU.  If enacted based on a “serious and persistent” breach, an 80% majority would be needed within the European parliament to proceed in the suspension of Hungary’s voting rights. While still possible, this eventuality was unlikely to be passed until recently, as Slovakia had publicly announced support for Hungary over these issues, which would likely be enough support to block 7.3 proceedings. However, Slovakian Prime Minister Robert Fico U-turned in late January, following a meeting with Ukrainian Prime Minister Denys Shmyhal in which Fico announced blanket support for both Ukrainian EU accession and for the financial aid package. This has left Hungary vulnerable and signals a Slovakian alignment with the EU over Hungary, which substantially raises the likelihood of a 7.3 vote passing.

The EU’s punitive measures of removing Cohesion Funding would have large ramifications for Hungary, accounting for 24% of 2024 EU funding, equivalent to 3% of Hungary’s 2024 forecasted GDP. This comes as Orbán’s government faces the highest debt-to-GDP ratio in Central Europe at 68.7% in 2023, and an expected budget deficit in 2024 of 6.5%. Additionally, Hungary’s debt servicing costs as a proportion of GDP are already the highest in Europe. Suspension of funding would cause serious problems for the already-vulnerable government and likely result in widespread budget cuts and reductions in public spending. The resultant impact on the forint would further heighten debt repayment costs, as approximately 25% of Hungary’s debt is denominated in foreign currency. Fitch reaffirmed its BBB-outlook stable rating in December but outlined significant cuts to EU funding as an instigator to a ratings cut, which would see Hungarian debt fall into speculative grade, further increasing debt servicing costs. multinationals should follow funding developments closely and plan for a downside scenario if the EU follows through with threats.

Adding additional complexity to the matter, the EU faces an effective deadline of July to handle these matters on two fronts. The first front is the European parliamentary elections, which are widely expected to see a surge in right-wing and Eurosceptic MEPs elected across the block, which will result in more support for Hungary’s existing defiant stance and may limit options for the EU to enact punitive measures. The second is Hungary’s looming EU presidency, which it is due to begin in July 2024. There have been calls since 2022 for Hungary’s presidency to be rescinded, with critics questioning how Hungary can ensure continuity of the EU agenda, and cooperation between EU member states and other EU institutions when it has not been exhibiting these values over recent years. These concerns are widespread, with a non-binding resolution passing with a strong majority in June 2023 that signaled MEPs’ discontent with a Hungarian presidency even prior to the recent Ukrainian-aid led conflict. Multinationals should thus keep in mind that any punitive actions against Hungary are likely to come to head prior to these deadlines, placing most of the political and economic risk for Hungary in H1 2024. multinationals should review scenario planning with this in mind but should be eased by a likely de-escalation of risks in the second half of 2024.

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