Brussels Undermines Its Credibility in Review of Regional Development Funds

Recently, media reported Brussels withholding a payment of HUF 700 billion to Hungary for projects financed under the previous EU budget, the programming period between 2007 and 2013.

That in itself is not particularly unusual. It’s not the first time and probably not the last that EU monitors raise questions about a new Member State’s development projects. Experience shows that once the questions are addressed and the technical matters settled, the funding in question is given a green light, or the monies are freed up to be used for other projects. The government of Hungary is working with Brussels to find a solution and because the delay in payment is not unusual, it doesn’t cause any major disruption to the budget.

The sticky part of the situation, though, is that the rules for the distribution of EU development funds were set under the previous, Socialist government — naturally, prior to 2007 — and it’s those rules and procedures that have caused the EU to withhold the latest payment. The EU budgets run a seven-year cycle, and the projects in question fall under the previous cycle and the previous cycle’s programming rules. It’s all part of the process and, frankly, not particularly interesting.

Last week, however, something extraordinary came to light. It turns out that the EU has selected a former Hungarian prime minister’s company, Altus, as a contractor on a project charged with the task of formulating opinions, reviews and conclusions about the upcoming programming period, the next period for the cohesion and regional development programs of each EU Member State. The contract was signed October 10, 2014 — just two days before nationwide municipal elections in which Demokratikus Koalíció actively participated.

The firm is headed by Ferenc Gyurcsány, former Socialist prime minister and current head of the opposition party Demokratikus Koalició. The Gyurcsány Government, by the way, set the rules for those projects for which Brussels is now withholding payment.

Formerly, the European Commission carried out this work using their internal experts. This constitutes the first time an award is give to a private company for a contract for this scope of work. And we’re not talking about small sums. The value of the contract is 1.5 billion HUF for two years (nearly 5 million EUR). Any of the international, Big Four consulting firms would be happy to have a contract of that size, and this is being awarded to an active politician’s firm that currently employs four people, including the former prime minister’s wife.

To carry out the work under this project, the company belonging to an active opposition politician will have access to information regarding every Member States’ development strategy for upcoming seven-year period and will draft a first opinion evaluating those strategies.

The EU’s selection of a company owned by an active opposition politician likely constitutes a serious violation of the EU’s principles against partisanship and raises serious conflict of interest questions. And that’s not just in Hungary’s case, but it’s relevant for all of the EU member states. When the firm’s owner is actively engaged in politics, how can one be sure that political motives will not influence the firm’s review and opinions on the development strategies of his own or other governments? Imagine the EU selecting a firm owned by a similarly prominent opposition politician of, say, France or the UK, to carry out a similar kind of work.

It is hard to understand the decision of the Commission to outsource this work to a private company in the first place. It is even harder to understand why they seem to have completely disregarded their own principles of non-partisanship and transparency. If for no other reason than simply the perception of inappropriateness, this contract should be withdrawn and tendered to a serious, independent consulting firm. If it remains like this, it’s yet another issue undermining the credibility of European institutions and gives ammunition to the skeptics. It’s not worth it.

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