Challenging Conditionality: Who Holds the Real Power—Viktor Orbán or the European Union? A Critical Assessment of the Rule of Law Conditionality Mechanism in Hungary

Keywords: rule of law, conditionality, Hungary, EU governance, cohesion funds,  democratic backsliding

1. Introduction 

The European Union underwent significant expansion through the 2004 enlargement process, which integrated multiple Central and Eastern European nations. While this historic moment marked a major step toward the reunification of Europe, it  also introduced long-term challenges regarding institutional convergence and democratic  resilience in post-communist states (Grabbe, 2006). 

This paper investigates to what extent the activation of the rule of law conditionality mechanism succeeded in addressing the systemic risks to the EU budget arising from institutional degradation in Hungary.

2. Definition of key terms 

Firstly, the concept of rule of law is understood as a structure of government in which all entities, including the State itself, are subject to recognized and codified laws that are  enacted and enforced by established processes (O’Neil, 2022). According to the  European Commission, the concept of rule of law is defined by six principles: legality, legal certainty, prohibition of the arbitrary exercise of executive power, effective judicial protection, separation of powers, and equality before the law (European Commission, n.d.). 

Secondly, the idea of a conditionality mechanism is presented in the Rule of Law  Conditionality Regulation (EU, Euratom) 2020/2092, by the European Parliament and Commission, under point no. 2, which affirmed that the Union’s financial  interests must be protected in accordance with the values enshrined in Article 2 TEU. In practice, this means that financial support from the Union is conditional upon compliance with foundational democratic and legal standards (European Parliament & Council2020). Regulation (EU, Euratom) 2020/2092).

Thirdly, the term systemic risk, in the context of EU financial governance, refers to institutional failures—such as non-control of corruption, lack of judicial independence, or  compromised public procurement—which undermine the EU’s ability to ensure  that its funds are being used rightfully and legally. This risk must be sufficiently direct and demonstrable to justify the suspension of funding (Regulation  2020/2092, Article 4). 

3. Methodological approach 

This paper follows a mixed analytical framework, combining legal and political document  analysis with quantitative governance data. The qualitative data relies on the  interpretation of EU legal texts, European Council conclusions, and academic literature  on democratic backsliding and conditionality. These documents span from 2013 to 2024, covering the evolution of the rule of law debate and the adoption of Regulation 2020/2092. The academic literature consulted includes both foundational theoretical texts and the most recent contributions on democratic backsliding, compliance models, and EU enforcement mechanisms Quantitative data is selected from the Worldwide Governance Indicators (WGI) developed by the World Bank in 2023, where three indicators are chosen for comparison: rule of law, control of corruption, and government effectiveness. Hungary’s scores are compared to those of Germany, Czech Republic and Poland. These three indicators were selected because they directly reflect a government’s capacity to uphold legal norms, ensure transparency in public spending, and manage EU funds responsibly. 

This table serves to support the argument that the risk of misuse of the EU budget is not  incidental but structural and provides measurable evidence of a systemic risk posed by  Hungary. 

4. Background of the problem 

Viktor Orbán, the current Prime Minister of Hungary, rose to power in 2010 through the  Fidesz party and has since promoted a model of “illiberal democracy” – a coherent ideological backlash against liberal values, promoting majoritarianism, nationalism, and cultural homogeneity under the guise of democratic legitimacy (Laruelle, 2022). Hungary’s internal transformation has triggered increasing concern from EU institutions. 

Hungary represents a new challenge for the EU that was not considered in 2004: the  democratic erosion of a member state, with potential ripple effects on other member states  and the credibility of its external conditionality. In 2022, the European Parliament declared that the country could no longer be considered a democracy, due to corruption, lack of judicial independence, absence of transparency, and attacks on press and academic freedom (European Parliament, 2022). 

Orbán defends his political course by asserting that Hungary’s national interests take  precedence over supranational EU norms—a stance that lies at the heart of the ongoing  legitimacy crisis within the Union (Kelemen, 2020). 

5. Theoretical foundations of conditionality and compliance 

5.1. Compliance and conditionality models 

Scholars have identified two main approaches to interpreting member states’ non compliance with rules: the enforcement approach, which advocates sanctions for  involuntary breaches and management approach, which sees violations as strategic and  favors dialogue (Czina, 2024). In line with the latter, Priebus (2022) argues that budgetary  conditionality is largely ineffective against deliberate political decisions, as in Hungary’s  case. 

Blauberger and van Hüllen (2021) argue that the creation of this mechanism was an  opportunity to reinforce, at least at a symbolic level, the Commission’s credibility after  the failure to apply Article 7. Hungary’s case illustrates the challenges of applying  the conditionality mechanism to a full member state, where noncompliance is deliberate  rather than accidental. 

5.2. Why rule of law matters 

Why is respect for the rule of law essential within member states’ domestic policies?  Several scholars have demonstrated its necessity for the EU’s proper functioning:

• Kochenov’s (2019) argues that the breakdown of mutual trust undermines  cooperation in the single market, judicial system, and Schengen area. 
• The European Commission (2020) stresses its role in safeguarding equality and  independent courts. 
• Pech (2022) argues that the rule of law serves as a fundamental pillar of  democratic systems. 
• The EBC’s 2018 economic bulletin demonstrates that institutions like national  banks depend on legal independence and rule of law for their operation.  

Hence, the need for a conditionality mechanism that enforces the respect for this principle is key to preserve institutional coherence and protect the EU budget. 

6. The activation of the conditionality mechanism 

6.1. Origins and Political context of the conditionality mechanism 

The idea of a conditionality mechanism was first proposed in the European Union in 2013, when four European foreign ministers suggested it in a letter as a “last resort” to protect  the rule of law (Rutte et al., 2013).  The political momentum behind the Conditionality Regulation emerged in 2018, when  the European Union faced persistent obstacles in enforcing Article 7.2 TEU  – “The European Council, acting by unanimity on a proposal by one third of the Member States […], may determine the existence of a serious and persistent breach by a Member State of the values referred to in Article 2,[…]”. Its requirement  for unanimity in the final stage rendered it ineffective, as Hungary and Poland protected  each other from sanctions (Kirst, 2021). 

As a response, the EU adopted Regulation (EU, Euratom) 2020/2092, which allows for  the suspension of funds if there are violations of rule of law principles that directly  threaten proper management or protection of EU funds (Art. 4). However, final activation took several months as both Hungary and Poland requested its review before the European  Court of Justice, arguing it infringed the EU treaties (Baranowska, 2022). 

Table 3. Comparison of EU Rule of Law Enforcement Mechanisms Source: Martina Llobell González-Gallarza

6.2. Legal activation: Hungary as the first case 

In April 2022, the Commission activated the mechanism against Hungary for the first  time on the grounds of corruption risks and deficiencies in European budgetary  implementation (Lane and Morijn, 2024). In September 2022, the Commission proposed freezing €7.5 billion, equivalent to 65% of  three cohesion programs. However, in December 2022 the Council reduced the  suspension to 55%, equivalent to €6.3 billion, acknowledging partial reforms made by  Hungary (Csaky, 2025). This resulted in the unfreezing of €10.2 billion in cohesion funds  just before the fiscal cost became effective (Csaky, 2025). This strategic shift occurred at  a time when the Commission needed Hungary’s vote (2023) to approve aid to Ukraine. Faced with the possibility of a Hungarian veto, the Union allowed the unfreezing of  certain funds (Lane and Morijn, 2024). 

In fall 2022, the Commission evaluated Hungary’s anti-corruption reforms and found  them insufficient to justify unfreezing the funds. While the Council acknowledged some  progress by reducing the suspension, this partial recognition raised questions about  whether the measures truly addressed the underlying rule of law concerns (Lane and  Morijn, 2024). As of February 2025, €19 billion remains frozen — which represents  10.7% of Hungary’s GDP (Csaky, 2025). 

This episode of geopolitical bargaining between Hungary and the European Union  illustrates that Hungary wields more leverage than commonly assumed. While the rule of law mechanism is legally enforceable, it remains susceptible to political trade-offs that  can significantly weaken its intended deterrent effect. Moreover, the UE has complementary tools for the enforcement of conditionality  measures. On the one hand, the Recovery and Resilience Facility (RRF) that introduces  the concept of “milestones”, of which 27 were established in 2022 for Hungary and whose  fulfillment is a requirement for the release of any fund (Csaky, 2025). On the other hand,  the Common Provisions Regulation (CPR) governs the management of cohesion funds  and allows the Commission to act unilaterally when freezing and unfreezing funds  (European Parliament & Council, 2021). 

7. Analysis of the results 

7.1. Domestic implementation and institutional evasion 

Following the implementation of the conditionality mechanism Orbán implemented a set  of anti-corruption and fund misappropriation laws in Hungary – largely symbolic and not  functionally transformative. The reforms included (Lane & Morijn, 2024): 

• A new Integrity Authority whose directing committee was appointed by a fully  captured state agency;
• The creation of an Anti-Corruption Task Force, lacking independence and being  effectively controlled by pro-government actors; 
• The new law against public prosecution can only be activated by those with access  to information that the prosecutor’s office is not required to disclose; 
• Additionally, the asset declaration system only requires declaration by one  member of officials’ households;
• Cooperation with OLAF — the anti-fraud EU agency — was improved on paper,  but domestic oversight bodies saw their powers reduced. 

According to various NGO(1) reports released in March 2023, Hungary failed to implement  any meaningful reforms, with most EU-mandated conditions regarding rule of law and  human rights remaining unaddressed, undermining the credibility of these promised  changes (Czina, 2024). 

Table 4 demonstrates Hungary’s history of veto actions, illustrating its ability to obstruct  collective EU decisions. The frequency and thematic breadth of these blockages reinforce  the argument that Hungary holds considerable leverage when its vote becomes pivotal in  moments of geopolitical crisis. 

7.2. Structural and legal constraints on EU enforcement 

One of the main limitations denounced by academics in the application of the  conditionality regulation is that, according to paragraph (e) of Regulation 2020/2092 the  mechanism can only be triggered if a breach of Article 2 TEU has a “sufficiently direct”  effect on the EU budget. Furthermore, paragraph (d) requires the Council to consider all  other possible alternatives – such as Article 325(4) TFEU, CPR, or financial regulation – before resorting to conditionality (Kirst, 2021). Therefore, if a country violates European  rules but not in relation to the use of funds, this conditionality system cannot be used as  a weapon (Kirst, 2021).

This situation also raises the question that fund conditionality can only stop, or attempt  to stop, countries whose economies depend on them and misuse them, something that  while now affects Hungary, would not affect other possible cases of wealthier countries  within the Union (Csaky, 2025). 

Moreover, paragraph I.1(c) of the Conditionality Regulation delays the application of  conditionality until the Commission has implemented guidelines, and the Court of Justice  has approved – under Article 263 TFEU – the implementation of such regulations  (European Union, 2008). This procedural condition delayed enforcement for nearly two  years, severely undermining the Regulation’s deterrent effect and credibility. 

The evidence suggests that while the regulatory framework is well-defined, its  implementation has had mixed results. Hungary’s strategic approach to compliance has  enabled access to certain funds through minimal reforms that meet technical requirements  without addressing fundamental concerns. Furthermore, the unintended consequences of  these sanctions have primarily affected Hungarian academic institutions and their  stakeholders, particularly impacting participants in EU educational and research  initiatives such as Erasmus+ and Horizon Europe (Czina, 2024). This reinforces the idea  that a legal instrument alone is insufficient without consistent political will. 

8. Conclusion 

The conditionality mechanism has created strong financial leverage but faces ongoing  structural constraints. While experts consider it essential for protecting EU values and  integrity, its effectiveness remains limited. Through strategic diplomacy and voting  power during key events, Hungary has secured partial fund access despite minimal  reforms, highlighting how member states with strategic importance can leverage their position. The EU faces the challenge of developing more effective legal tools to address  democratic backsliding, and its strength will rely on better safeguarding democracy  within its borders. 

9. Bibliography 

Baranowska, G. (2022). FREEZING EU FUNDS: An Effective Tool to Enforce the  Rule of Law? Max Planck Institute. https://doi.org/10.2139/ssrn.4168724 

Blauberger, M., & van Hüllen, V. (2021). Responding to democratic backsliding in  the EU: Supranational strategies and domestic obstacles. Journal of European  Public Policy, 28(3), 369–386. 

Czina, V. (2024). The Commission’s approach to rule of law backsliding: Managing  instead of enforcing democratic values. In Jakab, A. & Kochenov, D.  (Eds.), Enforcing the Rule of Law in the EU. EBSCOhost. https://research-ebsco com.scpo.idm.oclc.org/c/5v7is5/viewer/pdf/5sspb3rq2f?route=details 

Csaky, C. (2025). Challenging Conditionality: Who Holds the Real Power—Viktor  Orbán or the European Union? 

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European Commission. (2021). Rule of Law Conditionality Mechanism:  Commission defends the regulation in the Court of  Justice. https://ec.europa.eu/commission/presscorner/detail/en/ip_21_5801 

European Parliament & Council. (2020). Regulation (EU, Euratom) 2020/2092 on a  general regime of conditionality for the protection of the Union budget. Official  Journal of the European Union, L 433I/1. https://eur-lex.europa.eu/legal content/EN/TXT/?uri=CELEX%3A32020R2092 

European Parliament & Council. (2021). Regulation (EU) 2021/1060 laying down  common provisions. https://eur-lex.europa.eu/legalcontent/EN/TXT/?uri=CELEX:32021R1060 

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Kelemen, R. D. (2020). The European Union’s authoritarian equilibrium. Journal of  European Public Policy, 27(3), 481–499. 

Kochenov, D. (2008). EU Enlargement and the Failure of Conditionality. Kluwer  Law International.

Kochenov, D., & Pech, L. (2015). Upholding the Rule of Law in the EU: On the  Commission’s Pre-Article 7 Procedure as a Timid Step in the Right Direction. EUI  Working Papers. 

Kirst, N. (2021). Rule of Law Conditionality in EU Funds Regulation: The Added  Value of Article 2 TEU. Common Market Law Review, 58(3), 643–668. 

Laruelle, M. (2022). Illiberalism: A Conceptual Introduction. Journal of Illiberalism  Studies, 1(1), 1–12. 

Liboreiro, J. (2024, May 14). EU completes reform of migration rules despite  Poland and Hungary voting against. Euronews. https://www.euronews.com/my europe/2024/05/14/eu-completes-reform-of-migration-rules-despite-poland-and hungary-voting-against 

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Priebus, S. (2022). The Commission’s response to Hungary’s rule of law violations:  Symbolic politics or substantive enforcement? European Constitutional Law  Review, 18(2), 203–228. 

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Endnotes:

(1) The NGOs were Amnesty International Hungary, the Eötvös Károly Institute, the Hungarian Civil  Liberties Union, the Hungarian Helsinki Committee, K-Monitor, and Transparency International  Hungary