It’s time to recall what U.S. Ambassador Colleen Bell had to say about corruption in her much discussed speech: “Corruption stalls growth, stifles investment, denies people their dignity, and undermines national security…. Wherever systemic corruption has effectively undermined fair governance, it creates an environment ripe for civil unrest, resistance to the government, and even violent extremism.” It looks as if the U.S. government came to the conclusion that corruption in Hungary is no longer the ordinary “garden variety” of corruption where government or municipal officials offer favors for cash but the kind of corruption that affects the entire body politic.
A case in point is the corruption that surrounds the disbursement of European Union subsidies, which the government tolerated and perhaps even encouraged. Or at least this is the conclusion we can draw from the latest Transparency International study titled “Corruption Risks of Union Sources in Hungary.” In this study there is a telling table that lists reports of alleged corruption cases in connection with EU subsidies in 2014. While in Belgium the authorities reported 28 cases of the possible misuse of Union funds (compared to 25 private actions), in Hungary all 28 complaints came from individuals and none from central or municipal governments. Even in the very corrupt Romania there were four instances in which the authorities themselves turned to OLAF, the organization that investigates corruption cases.
One of the important findings of the study is that the abundance of money coming from the EU is a major reason for the systemic corruption that exists in Hungary. The second Orbán government in 2010, right after the elections, stopped all projects that were underway and began reorganizing the agency that handled EU funds. As a result, for almost two years nothing happened, even as the country was nearing the end of the seven-year budgetary cycle. The money had to be spent and in a great hurry. As a result, in the 2013-2014 period the government wasn’t terribly fussy about what project would be funded or how much it would cost. The only aim was to spend the money before Hungary lost a large chunk of it. Just to give you an example of the superabundance of money during this period, here is a shocking figure. The amount of money that was spent during 2013-2014 was 10% of the Hungarian GDP. That is an enormous amount of money. Almost three times the amount that Hungary normally receives yearly, which is 3.5% of the GDP.
It is a well-known fact that 95% of all government investment comes from Brussels, without which there would be no economic growth whatsoever. In 2014 the Hungarian government could boast an economic growth of over 4%, which was hailed as a turning point and the beginning of a soaring economy. As if from here on growth would be consistently over 4%. Orbán at times even talked about 5-6% economic growth, which would make Hungary the leading economic power of the region. If you consider, however, that the Union subsidies during that period were 10% of the GDP, then the 4.2% growth is not at all impressive.
This period’s overabundance was unusual, but even the average amount of money that comes from Brussels is substantial. And unfortunately most of it seems to be wasted, at least as far as trying to lay the groundwork for sustained economic growth is concerned. Just to give you an idea of how much money we are talking about, here are a couple of figures. During the budgetary cycle between 2007 and 2013 Hungary received 26 billion euros, a large chunk of which was spent in the final few years. In the next cycle (2014-2020) an additional 19 billion euros can be used. What does Hungary have to show for all this capital infusion? The results are pitiful.
Transparency International found that, on average, companies that win contracts for EU projects overprice their products by 25% and that the authorities know all about the practice but don’t complain. It is considered to be the normal way of doing business. Dickering over price takes time, which the government, in its rush to spend, doesn’t have. Checking on wrongdoings is also time consuming. Of course, the overpricing of products and services can sometimes be staggering. Ákos Hadházy of LMP, the vet from Szekszárd, has ferreted out some such extraordinary cases. In one instance the contractor billed five times the market price for pieces of machinery.
During his research the author of the study, László Kállay of Corvinus University, noticed that the rate of the overpricing doesn’t seem to grow over time. “As if there is some kind of control in the system.” As if there was some kind of understanding between the government and the providers of the services. As long as they are not too greedy and stick to the 25% overpricing, the government will not raise objections.
Meanwhile OLAF is investigating 13 of the 28 complaints coming from individuals. With this number Hungary is in second place in the list of countries whose handling of EU subsidies is suspect. Only Romania has a worse record with 36 questionable cases.
And now a piece of news I spotted in The Financial Times back in September. According to the article twelve EU member states might be in trouble for failing to meet the required standards for public procurement: Bulgaria, the Czech Republic, Greece, Croatia, Italy, Latvia, Hungary, Malta, Poland, Romania, Slovenia, and Slovakia. If EU procurement standards are not met by the end of 2016, the auditors said, “the [European] Commission should use its powers consistently to suspend payments to member states, until such time as they have rectified the shortcomings.” Some of the monies have already been withheld, as was reported by the Hungarian media back in August and September.
Of course, the Prime Minister’s Office simply doesn’t understand what Transparency International is talking about. There may have been problems in the past, but since August 2013 János Lázár himself has been supervising the disbursement of EU subsidies. He has been the foremost advocate of transparency and clean hands. His new deputy, Nándor Csepreghy, announced the other day that there was nothing new in the study published by Transparency International. I’ll bet that most people will disagree with him and will find plenty of new information in László Kállay’s study on systemic corruption in the Orbán government.