Hungary may soon be left hanging for some €13 billion ($13.4 billion) of EU funds in the long-simmering dispute over what EU officials see as democratic backsliding in Budapest, following a negative European Commission assessment on recent reform efforts.

The EU executive branch recommended on Wednesday that payments from two pots of EU cash equivalent to one-fifth of the country's 2021 budget expenditure be withheld until the government of Prime Minister Viktor Orban makes good on reform commitments relating to judicial independence and fighting corruption, among other things.

"There can be no disbursements to Hungary unless and until all 27 milestones covering judicial independence and protecting the EU budget are respected," European Commissioner for Economy Paolo Gentiloni said in a statement. "It is thus first and foremost in Hungary's interest to ensure that this is the case."

Green light for recovery plan, but no cash just yet

The European Commission has given the green light to Hungary's plan to spend €5.8 billion of post-pandemic economic reboot money, but said no transfers should be made for now, pending further improvement. Budapest was the last of the 27 EU countries to get this approval.

Budapest may also miss out on €7.5 billion of cohesion funds, which aim to close the gap between poorer and wealthier regions in the bloc, earmarked for 2021-2027. The European Commission said there was still a risk to the EU budget even though several reforms were underway, and progress had been made.

It is now up to the EU member states to decide on the recommendations by December 19, the Commission explained.

The fight is having a knock-on effect on other major EU initiatives. Hungary has declined to approve an €18-billion loan plan for besieged Ukraine and a plan for a minimum global tax rate for major companies. Budapest claims its opposition is unrelated to the EU cash, but some EU partners are suspicious about frequent vetoes over joint initiatives.

Long saga over democratic standards

The European Commission has long criticized Orban for overseeing the steady erosion of democratic institutions, such as an independent judiciary and press, and for failing to tackle systemic graft. Budapest has accused EU officials of carrying out a "witch hunt."

Nonetheless, Hungary had committed to implementing 17 remedial measures by November, months after the Commission triggered a new tool designed to protect the EU budget (set up in 2021 with one eye on Hungary). After the deadline lapsed, Commission officials found that there had been improvements, but still not enough.

Some of the key reforms Budapest is being told to carry out include strengthening the National Judicial Council, reform of the Supreme Court to limit risks of political influence and rowing back a new Constitutional Court power to review judges' final decisions at the behest of public authorities. Another is improvement to Hungary's new Integrity Authority.

Budapest's chief negotiator with the bloc, Tibor Navracsics, said Wednesday he was confident that the government would resolve the dispute next year, AFP reported. "We trust that we will implement the remaining requirements, and in 2023 we can convince the Commission... that continued suspension of funds won't be needed and that we can access 100% of the funds in 2023," Navracsics said, according to the news agency.

Budapest accused of 'blackmail'

Budapest is a major recipient of share EU funds, and Orban's critics have long been calling to hit the government where it hurts — the budget.

One such voice is Rasmus Andresen, a German EU lawmaker from the Green Party. "The EU cannot let itself be blackmailed by Viktor Orban," he said in a statement welcoming the Commission recommendations. "It is deplorable that he is taking urgently necessary financial aid for Ukraine and the minimum tax rate for big companies hostage for his own interests."

Assuming the other EU states follow the recommendations of the European Commission, Hungary will have to show that it has met all 27 conditions to lift the suspension. A senior EU official told reporters on Wednesday that they expected Hungary to approach the Commission again in February for a fresh evaluation of reform efforts.

Edited by: Anne Thomas