How Hungary is using budget loopholes to claw back its frozen EU funds

Good morning. It took him two attempts, but Friedrich Merz won parliamentary backing yesterday to become Germany’s chancellor. His initial failure was the first time a chancellor had lost a confirmation vote, in an ominous start to his tenure.

In today’s triple-header edition, our finance correspondent reveals Hungary’s attempts to get hold of frozen EU funds, I preview foreign ministers meeting their UK counterpart, and the solar industry tells our energy correspondent that renewables aren’t to blame for last week’s Iberian blackout.

Smash and grab

Hungary could use legal loopholes to unfreeze more than €750mn in EU funds withheld by Brussels over rule of law concerns, writes Paola Tamma.

Context: The EU froze €22bn destined for Hungary in 2022, owing to concerns over judicial independence, asylum rights, LGBT+ discrimination and academic independence. €10bn was released in a 2023 deal to get Budapest to drop a veto on Ukrainian aid with the rest remaining on ice.

But Hungary has been using different loopholes to thaw the money.

It requested a change to its spending plans for so-called cohesion funds for regional development in February, unblocking €157mn, EU officials and diplomats said.

Now, it has requested a further €605mn be moved from frozen funds to other programs, as part of a wider scheduled “midterm” review of the EU’s common budget.

The prospect of Budapest getting hold of that cash without implementing requisite reforms has alarmed a group of eleven countries, including Germany, France and the Netherlands, who are now trying to block the process.

European Commission officials cautioned that negotiations on the budget review were ongoing and there were multiple potential outcomes.

The commission would have to approve any further changes to Hungary’s spending programme, a spokesperson said.

Chart du jour: Show of strength

European companies such as SAP, Porsche and Heineken are sounding the alarm over the strong euro threatening exporters already struggling with US tariffs.

Huddle

British foreign secretary David Lammy joins his EU counterparts in Warsaw this afternoon for talks on the future of Europe’s security architecture.

Context: The continent faces an uncertain future, as US President Donald Trump and Russian President Vladimir Putin negotiate a peace deal in Ukraine, and the US threatens to end US security guarantees to European partners if they don’t spend more on defence.

The meeting with Lammy comes ahead of talks tomorrow on new sanctions against Russia — including measures targeting Serbian, Turkish and Vietnamese companies accused of aiding sanctions evasion — and proposed EU defence spending initiatives.

London-Brussels relations are going through something of a renaissance at the moment, but there is less clarity on the mechanics of any formal co-operation on defence.

“We are working hand-in-hand with our European allies to build a safer, more secure, and more prosperous Europe. Together, we will stand firm against aggression, defend our shared values, and deliver lasting peace,” Lammy said ahead of the talks.

Lammy, who was the first UK foreign secretary since Brexit to attend a formal meeting of EU foreign ministers last October, will also raise preparations for the UK-EU summit on May 19, where officials hope to clinch a defence agreement.

“In the face of Russian aggression . . . we are resolute in defending Europe’s security,” he added.

System failure

The EU solar industry body has warned against blaming renewables for the recent power cut in Spain and Portugal, arguing that those who point fingers at them are rushing to conclusions, writes Alice Hancock.

Walburga Hemetsberger, chief executive of SolarPower Europe, said that “blaming renewables up front is the wrong strategy”, although the causes of the Iberian blackout were not yet clear.

Context: Spain and Portugal suffered a sudden blackout last week. Several experts and politicians have since blamed a heavy reliance on solar power at the moment the power cut.

Hemetsberger said that after blackouts in the UK in 2019 and Texas in 2021, premature accusations that they were due to the volatility of renewable power were later proved wrong. Both were caused by weather events.

The lesson to learn from the Iberian incident is that the EU should focus more on energy storage, she said. “We need secure systems and not ones that are just secured by fossil [fuel] assets.”

Figures from SolarPower Europe published today show that the EU’s battery storage capacity grew by 15 per cent in 2024, compared with the year before. But despite the increase, growth had slowed from an 84 per cent rise in 2023.

In Spain in particular, battery installations last year declined by 41 per cent compared with 2023, although the country still has the fifth-largest battery storage fleet in Europe, most of them small-scale residential batteries.

What to watch today

1. EU foreign ministers begin an informal meeting in Warsaw.

2. German Chancellor Friedrich Merz visits French President Emmanuel Macron.

3. Chinese President Xi Jinping visits Russia.

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