Brexit and the European Court of Justice - proposed BREXIT guidelines of the European Council

One of the spectacular arguments of the brexiteers was to liberate the U.K. from the "tyranny" of the European Court of Justice (in general from European lawmaking).
The guidelines formulated by the team of Donald Tusk put important limitations to this ambition.
This is partially related to the transition period, partially to the new arrangements.
The new arrangements will require a judicial authority to treat the conflicts which arise from the interpretation of the agreement and to sanction the non-compliance of the parties (remember, the judicial remedies were one of the sensitive points of the TTIP). The EU proposes this to be the European Court of Justice. Another solution, however, may be arbitration - as mentioned, one of the stumbling blocks of TTIP. Whether the EU agrees to that, is up for a bargain.
Also, if the new arrangements are not agreed within the two years from when article 50 was triggered (i.e. end of March 2019), the parties need transitional arrangements. It was already floated by the EU that EU law may remain in force in the U.K. - and this is more in the interest of the U.K. that the EU, therefore the EU has a leverage in this and will use it to make the European Court of Justice the arbiter on the implementation of European law also during this period.
And finally: cases in progress, not just before the European Court of Justice but also administrative instances (like infringement procedures of the European Commission) and cases which may be initiated later based on the period when the U.K. was still a member and was thus bound by European Law. The negotiating guidelines explicitly mention that in these cases the European Court of Justice has to retain jurisdiction even after the departure of the U.K. from the EU.
So - like a lot of other things - this is not so clear cut, as the "Leave" campaigners tried to depict. Surprises still in the making...

Ever closer union - why and how?

Do not be deceived, I will not philosophise about federalism, power to the EU or power away from it. These are important questions and are dealt with on this blog several times, connected to concrete questions.
What I want to recall here, is just where this term comes from and how it became an obsession.
First of all, the reference is to the first recital of the Rome Treaty, creating the European Economic Community or simply said, the Common Market. Great, let's see whether the Rome treaty actually contains this formulation, or something else. We open EUR-Lex, look for the Rome treaty and find it - surprise, surprise, as the United Kingdom was not among the founding members - in Dutch, French, German and Italian (in alphabetic order of the name of the languages) - Belgium spoke French and Dutch and Luxembourg German and French, therefore four languages for the six founding states. No English, sorry. Here is the link: http://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:11957E/TXT - EN stands for the language of the interface, not of the text.
As a devout European and speaking some European languages (one from each main language family), I can try to find the phrase in the existing versions. In Dutch: "verbond", German: "Zusammenschluß". However, in French: "union", in Italian: "unione". So far tie.
The English translation is, however available on the Commission archives.
Let's see this text: it talks about: "lay the foundations of an ever-closer union among the peoples of
Europe".
Before continuing, a look at the Maastricht treaty shows a new text as the first recital: "to mark a new stage in the process of European integration undertaken with the establishment of the European Communities" while the last recital already continues the line of thought: " to continue the process of creating an ever closer union among the peoples of Europe, in which decisions are taken as closely as possible to the citizen in accordance with the principle of subsidiarity,.

Some commentators conclude from the first recital, that it has nothing to do with political union, but targets to bring the peoples of Europe closer together. Reading the other linguistic versions, this interpretation seems close. The member states creating the European Union, however, saw their enterprise expanding co-operation to non-economic political areas, although at different depth - the famous "three-pillar approach" abandoned by the Lisbon Treaty -  as the further implementation of the original idea, thus giving it a more express political dimension retroactively.

I did not really hear any "federalist" to quite this passage to support any idea of closer co-operation while this was often quoted as the stumbling block by Britons - be euroskeptic or just opportunist like Cameron - hindering their country's commitment to the EU. The thoughts I outlined above are quoted in defence of loosening the union by Fullfacts, which calls itself "the UK’s independent factchecking charity" - and is actually fairly neutral

So what is left is to quote again the  final phrase of the already quoted recital of the Maastricht treaty: "...in which decisions are taken as closely as possible to the citizen in accordance with the principle of subsidiarity". This can be seen as a limit, or even as a guiding principle what this ever closer union will really look like.

Both the Council of the EU and the LIBE Committee of the European Parliament accepted the compromise text of the new General Data Protection Regulation which will be formally voted on plenary and then in the Council early 2016 to come into force in 2018.
The compromise text is available here.

Some important issues (based on the first analyses http://www.ashfords.co.uk/the-new-eu-general-data-protection-regulation-is-finally-here/; http://www.natlawreview.com/article/general-eu-data-protection-regulation-bullet-points)

The most publicised change is maybe the formal inclusion of the "right to be forgotten" : that even when processing (mainly in the case of publishing) date was legitimate originally, with time the interest of privacy of the data subject may override the interest of processing (the public to know, for example).
All companies processing data of residents of the EU are subject to the regulation, whether seated in the EU or not.
Some points enhance the responsibility of the controllers (who determine the prupose and means of the data processing and are primarily responsible for it and usually most interested also) and processors (who act on instructions of the controller). The latter are explicitly responsible for their actions and can directly (without instruction of the controller) be instructed by the courts or by the data protection authorities.
Nomination of a data protection officer, stricter rules for consent of the data subjects to processing their data, the risks to the data subjects must be assessed before processing their data - with reasonable limits of proportionality. This risk analysis gives companies the possibility on the other hand to define themselves what security measures are adequate.
The research community noticed with relief that those points which they thought would hinder scientific (mainly medical) research were softened. However, there are restrictions: pseudonymised data remain personal data, for example with the resulting responsibility and rules to be complied with.
The much heralded "one stop shop" - making it easier for the data subjects to complain in case of cross-boarder processing of their data - gave some way to convenience of the authorities but basically stayed in the text.
A compromise was found between the Parliament (who wanted 5% of turnover) and the Council (who wanted 2) about maximum fines: it will be 4%.
Privacy by design is another new concept enshrined in the new regulation.
Transfer of data, possibility to base processing personal data on legitimate interest of the controller and data portability (the possibility of the data subject to request transmitting his/her data to another controller, for example in the case of changing a service provider) is also better defined.

Donald Tusk declared victory after the first day of tbe European council, and not without reason. The perspective of agreeing to start creating an energy union was not rosy , several member states were weary to give up their independence, among them the Hungarian prime minister, who made several shady energy deals with Russia, including an obscure offshore company skimming the difference between the cost an sales price of gas supplies and a nuclear power plant (some ten years in advance of the real need of starting it, if energy needs i. 2035, the expected expiry of life of the present plant, is at all foreseeable) to be constructed exclusively by the Russians and also financed by a loan from them), but other countries were also not enthusiastic. So what about the result? Euobserver analysis is cautiously optimistic. The conclusions paint a more sober picture than the triumphantdeclarations: they reflect the limitations imposed by the self-interest of the member states jealous to save their separate ways: ..".the European Council focused on some of the aspects", "ensuring full compliance with EU law of all agreements for buying gas from external suppliers" - isn't this so without emphasising it? "confidentiality of commercially sensitive information just be guaranteed" -as if Orbán had it dictated... And finally: "assessing options for voluntary demand aggregation mechanisms" - no common buying arrangements, just assessing options; emphasising sovereignty and right of the member states twice. Some positive e!ements are no doubt a!so present: cooperation,reinforcing the legislative framework for secure supply of electricity and gas. So, the first small steps were taken. But the plans earned already criticism: this article reveals why the development of domestic energy resources and the freedom of member states to decide on their energy resources features prominently in the text: Poland is strongly dependent on coal and wants to develop shale gas. See also here So it was not just the reluctant followers who got their special deal, but also the leader.

Hungarians in the European Institutions

The European elections mark a change in the composition of not just the Parliament but also the Commission, election of the new president of the European Council and of the High Representative of Foreign and Security Policy, who is at the same time the vice-president of the Commission responsible for external affairs, head of the European External Action Service and chairs the meetings of the Foreign Affairs Council (all other Council configurations being chaired by the respective minister or prime minister or head of state of the country holding the rotating six months presidency of the Council, depending on the configuration).
Civil servants do not change, only some directors general may change posts (usually remaining directors general, just in another Directorate General), but this is a much smaller change even among directors general than the usual rotation after they have spent about five to seven years on their post. It is not going without attention, however, at least in some member states, how they are represented among civil servants of the EU (see here the British and here the French), in particular on management posts. So we will give a little analysis of what can be seen now in the “strength” of Hungarians in the EU.

The data and positions of the MEPs are public, and the Commission also publishes regularly different staff statistics. As far as the Parliament is concerned, the blog of Julien Frisch published overall nationality data. No data were found about the Council secretariat. Here is what Julien Frisch knows about it. Here you can find interesting research about the attitudes of Commission staff.

Hungary has 21 members in the European Parliament. Two of the members of the FIDESZ-group (EPP) are from the Hungarian minority in the neighbouring countries (Romania and Serbia) while three MEP-s won mandate from the Hungarian parties, one in Slovakia and two from Romania. One representative of the FIDESZ party was elected vice president of the Parliament – the FIDESZ-group already gave a vice president in the last cycle so this is confirmation of their position. As the EPP lost places, the support of the relatively large FIDESZ-group is important.
The distribution of Hungarians in the committees is not quite even, in some (the Committee of Civil Liberties, Justice and Home Affairs) there are too many Hungarians (OK, this will or could be the scene for discussions of the rights of national minorities, as here are two of the representatives of the Hungarians in Romania and in Slovakia in this committee besides the two MEPs from FIDESZ and one from Gyurcsány’s party; also, this was the committee which prepared and approved the famous “Tavares report” and also in the Committee for the Environment while there is no Hungarian in the important committees “Economic and Financial Affairs” and “Budget”. As far as vice-presidents of the committees are concerned, of the 20 committees and 2 sub-committees, four have Hungarian vice-president, among them one from the Socials and Democrats grooup (but not the leader of the Hungarian delegation of this group, who eyed a vice president's position in the Employment Committee,. The real power in the committees belongs, however, to the co-ordinators. Out of 56, 21 are German, 4-4 are Dutch, Spanish and French. All other countries have less posts – Hungary ne, and one vice-coordinator, both from FIDESZ.

The Parliament disclosed in 2010 the number of its officials by nationality (MEPs and their assistants have a special status, they are probably not included): out of 7652, 210 are Hungarian, which is a little more than the 2% (a little less since the accession of Croatia) Hungary represents in the number of inhabitants in the EU.

More detailed data (although only the latest status) are available from the Commission which is the biggest institution and also very important in preparing decisions. Although final decisions are taken in the Council and the Parliament, their staff has less influence on the decision of their institutions. In the Commission there were 2.39% Hungarians among the officials (and temporary agents, a category to replace them when their status is empty), this increased to 2.59% by now. This is important even if not a big increase, as slowly the return of officials to Hungary started: some didn’t like the environment or working abroad, the spouses could not accommodate, or, they were temporary agents and their contract expired (this was the case of several management officials).
The proportion of Hungarian administrators (the higher of the two main employee categories till the 2013 reform – as a third, lower category was introduced in 2013, their numbers are not meaningful) is higher than of assistants (the other group).

Statistics on management positions are currently not available (got hold of some before, when they were new) but we know that there are about 1200-1400 heads of unit in the Commission. We also see the composition of officials by grade and as Hungarians are not long ago in the organisations, it could be assumed for a while that those who are in grades where managers are, are indeed managers and not clerks who rose through time to a high grade. 2009 and 2011 data were published on the overall number of heads of unit and the proportion of Hungarians among them was only 1.89% in 2009 but 2.43% in 2011. Slowly, however, administrators who entered the Commission as AD5 or AD7, reach the level of AD 9 which is the lowest grade for heads of unit. So today’s figure of more than 3% can be misleading. A quick count through the EU Official Directory (showing management staff) and allowing for some people with Hungarian-sounding names who are not Hungarians but only of Hungarian origin – and the other way round, there are about 25-30 Hungarian heads of unit (so a little still more than 2%) and about 10 directors and equivalents, which always was above the 2%. Further analysis, however, shows that in at least three important central department (DG) there is no Hungarian manager: in the Secretariat General, the Legal Service and the Budget Directorate General. This darkens a little the bright picture shown by the numbers.

The "Google case" - right to be forgotten by search providers

„Dumm hat Glück” - stupid is lucky, says the German. Sometimes lazy people also have luck: I did not have the energy to comment about the „right to be forgotten” case involving Google search results but recent days brought new developments, so I have an occasion to make up for this.

We read from time to time that “Google is evil”. Even Google gives nice results for this. And we also read sometimes interesting reactions to that. But it is not just Google. What appears once on the net, will stay there (or at least in references or at least in the cache of some computer) forever. So Viviane Reding, vice-president of the European Commission responsible for Justice, fundamental rights and citizenship made the “right to be forgotten” an important element of the EU data protection reform. We will give links to more recent materials on the reform below, and the blog quoted above also carries an analysis of the judgment of the European Court of Justice.

The case will be called “Google Spain”, it carries the number C-131/12 and the judgment can be found here . It says that the operator of a search engine is responsible for the processing it executes on personal data which appear on web pages of third parties and is obliged to remove the data from its search results on a legitimate request of the data subject, even if the data remain on the original web page. There are conditions, however, among others for the processing to fall under European law, and the Court also explained one aspect of the legitimacy of the request.

A Spanish citizen sued Google to remove from its search results data concerning him. The Court found that given that Google has an operation in Spain whose activity was found to be related to presenting the search results to Spanish users. The processing of the data and the presentation of search results was not done by Google Spain, who was only selling advertisements to be shown on the Spanish search result pages. This was sufficient for the Court to say that the activity was related. On the other hand, the Court also said that there may be reasons of overriding public interest which would justify that the search engine does not remove the data from its search results.

What is important in this judgment, that although the “right to be forgotten” will only be enshrined (if the Member States and the European Parliament approve – see a recent argument by the British minister of Justice) in new data protection regulation now under preparation, it already recognised based on the present legal framework that data subjects have the right not only to request the deletion of their data from the records of those who process their data, but also the indirect appearance of these data on the Internet.

This of course has consequences to all who provide references to data others put on the web. But also means that even if some data cannot be deleted (like official documents published), they may have to disappear from secondary sources, thus making finding this information more difficult or even impossible. If will be an interesting question whether the search results of the primary publisher of the information also will have to “forget” the information.

The saga is, however continuing as Google receives thousands of requests to remove information from its search results, and took an overly cautious approach and removed links to several articles on a public personality but was forced to retreat and reinstate the references.

For those who want to read more, here is a thorough analysis. And the Guardian, who was one of those whose articles were removed, who gave also a good reporting of the case.

On data protection reform, here is the latest text under discussion by the Council.

What does the Hungarian minister of the national economy (including finance) know and understand?

According to a press article,the minister of the national economy, Mihály Varga (this superministry integrated or rather melted into itself the finance ministry, ministry of economy, labour and the different sectoral ministries - foreign trade, commerce, industry etc.) declared that the Hungarian government will not follow the recommendation of the European Council (it is prepared by the Commission but descussed in the Council and signed by the president of the Council) to cut tax benefits to poor people. Apart from the fact that low earners in Hungary have no special tax benefits (they were abolished by the FIDESZ government to cover partially the costs of the flat personal income tax), the article states that Varga confused the tax wedge with the tax benefits as the coutry-specific recommendation to Hungary proposed to decrease the tax wedge for low earners (see point 3 on page 7). Actually the document complains in an earlier paragraph (number 12 on page 5) that the" tax wedge on single low-income earners is one of the highest in the EU". Probably Mr Varga should have read the Hungarian version. There, the translator (who knows why, certainly not fearing misunderstanding by an economist and economy minister) translated the tax wedge to "tax burden" (pages 5 and 8 as the Hungarian text is somewhat lengthier).
The recommendations are denouncing the sectoral extra taxes (with the following justification: "The application of different tax rates across sectors is an obstacle to the effective allocation of resources
and thus negatively affects growth" and recommend a more equitable tax system. This is no surprise. No surprise either but very instructive are, however, some other statements about the situation of the economy and about economic policy: "Notwithstanding the Central Bank's subsidised 'Funding for Growth' scheme for small and medium-sized enterprises, normal lending to the economy has not picked up in a sustainable manner." (see also in Hungarian: Why the "funding for growth" programme did not help?)
"The regulatory burden on the financial sector has been
further increased, thus limiting the capacity for capital accumulation. Measures like
the increase of the financial transaction duty have contributed to a pick-up in the cash
usage of the economy. The household portfolio has further deteriorated and the high
proportion of non-performing loans currently represents one of the biggest
challenges for the financial sector. Portfolio cleaning is hindered by the weak
efficiency of resolution proceedings."
Also interesting: "The youth unemployment rate has decreased in 2013, while the rate of young people who are not in employment, education or training has increased." -  hints to the phenomenon often discussed in the Hungarian economic press that employment figures may hide more than reveal the real processes. "The Public Work Scheme attracts the bulk of budgetary resources available for employment measures, but in 2013 less than 10% of its participants were able to return to the open
labour market after exiting the scheme."
"The business environment in Hungary is characterised by frequent changes in the
regulatory framework and limited competition in an increasing number of sectors.
New barriers have been introduced in the services sector and existing ones have not
been removed (e.g. pharmacies, waste management, mobile payment, retail tobacco
and textbooks)."
"Overall investment has declined particularly strongly in those sectors
where sector-specific surtaxes have been imposed in recent years. Between 2010 and
2013, nominal investment declined by 44 % in energy, 28 % in finance and 18 % in
the communication sectors, while increasing by 3.4 % overall."

And so on, and so on. So if after this, the minister of national economy says that Brussels does not require adjustment any more, obviously concentrating on the budget balance (in fact this is also a little false as the recommendations state: "Reinforce the budgetary measures for 2014 in the light of the emerging gap of 0.9% of GDP relative to the Stability and Growth Pact requirements, namely the debt reduction rule, based on the Commission 2014 spring forecast. In 2015, and thereafter, significantly strengthen the budgetary strategy to ensure reaching the medium-term objective and compliance with the debt reduction requirements in order to keep the general government debt ratio on a sustained downward path."), he forgets his role beyond being the minister of finance, to be very polite. For the uninitiated: a lot of criticism and recommendations target the governments pet measures, denounced also in Hungary even by economists who supported FIDESZ before.

There are problems also in the social area (another superministry is the Ministry of Humnan Resources): "The proportion of early school leavers is on the rise and the adoption of an early
school leaving prevention strategy has been repeatedly delayed." - and this in the context when compulsory upper schooling age has been decreased.

A final quote: "Review the impact of energy price regulation on incentives to invest and on competition in the electricity and gas markets. Take further steps to ensure the autonomy of the national regulator in establishing network tariffs and conditions. Take measures to increase energy efficiency in particular in the residential sector." - Another pet project, the "decreasing utility charges" is under attack. If we look what was written above about the investment scenario, we see why. The criticism of the public procurement system is very diplomatic, but sstill, recommends improvement. THis would, however, stop the government from distributing public work contracts to its cronies. No surprise but very sad that the minister shows himself deaf.

The "fight" for the presidency of the European Commission

There was no big opposition against the idea that the European parties should nominate their candidate to the presidency of the European Commission as it was expected that this could boost participation. Apparently the participation did not fall as expected but many doubt ( see for example here) whether this was due to this so-called "Spitzenkandidaten" system.
The same newspaper demanded already in 2009, before the previous European elections in an editorial that: "Voters must be told what they vote for. The Parliament's groups should tell votes who they want to be the next Commission's president. ... European Parliament elections have for far too long been presented... as a vote for Europe or against it. Political parties should change their approach and make clear that these elections are about what kind of European Union voters want."If the debate were about whether naming the candidate for Commission president is just that, it would make sense. I will try to answer this question below.
After the election, however, political actors start to discover the inconveniences of this idea and thus their disagreement with the principle.
The principle comes from an extending interpretation of the Lisbon treaty:the Council proposes "taking into account the result of the EP elections" a president for the Commission and the Parliament has to approve him/her by vote. It is only after that, that the commissioners can be nominated by the governments (one by each) and it is even after that, that the High Commissioner for Foreign and Security Policy (who is vice president of the Commission and chairs the External Affairs Council) and as the last, the president of the European Council (which is different from the different formations of the Council of the European Union, of which the the External Affairs Council is one) are nominated.
The system of institutions and the way the EU works is a delicately constructed framework and there is no doubt that the European parties threw a stone into this - actually never quiet and sometimes murky - pond.
So it is the European Parliament who finally approves the Commission president while it can only vote about a proposal brought forward by the Council. So it sounds logical that the parties in this Parliament can express whom they are ready to vote for. On the other hand, the separation of powers of initiative and approval is a feature of the EU which among others gives a power to the Commission national executives do not have - while the Commission lacks some other powers of national executives -, thus it is an important part of the above-mentioned delicate construction. The Parliament was in fact limiting the choice of the Council in whom to propose. The more so, as the Council has a majority of conservatives (mainly in the EPP) and this party is also the strongest in the Parliament. Had the Socialists won the EP elections, and the Council proposed Juncker the EPP candidate, not Schulz, the Socialist's favourite, the EPP could have still assembled a majority in the Parliament to approve Juncker. A nomination of Schulz could also been digested, in particular by Juncker, whose ambitions always pointed more towards the presidency of the European Council, which he could have won in exchange. But the time of these bargains is over, it seems taht eithe Juncker, or another EPP candidate will be proposed by the Council.
But why is Juncker's nomination in question? He is supported by Angela Merkel, the strongest national leader in the EPP (the French government is socialist). The opposition came first from Viktor Orbán, the Hungarian prime minister, and then from Sweden, Denmark, the Netherlands and - Britain.
What makes the situation bizarre, is that although the question to be put was whether the voters want an EPP or a socialist candidate, the reservations against Juncker (and also against Schulz) are that they are too federalist. So we are back to the "more Europe" or "less Europe" question, which we should have forgotten. On this, however, the voters could not decide, as neither the ECR, to which the British conservatives belong, nor other eurosceptics staged a candidate for the Commission presidency. And - again no one knows whether due to that or not - all non-europhiles gained only 30% in the EP. A clear minority. We cannot go into the question whether this is much or little, why and how the people voted. It is widely discussed in the political press.
Before we deal with the Hungarian aspects, let's be up my promise: what can the European elections decide in terms of where Europe goes? Clearly, the power relations in the Parliament influence the direction, although no party has a clear majority and coalitions have to be forged. These are occasional coalitions, not like a government coalition. And some analysts like Professor J.H.H Weiler, president of the European University Institute (still a few but nevertheless I think they found the real problem in European-level democracy, the so-called "democratic deficit" of the EU) say, that in a real democracy, a governing coalition should be formed and it should define the way the executive works. The Commission, however, is not quite like a national executive. And its members are nominated by the member states and are usually adherents of the governing national coalitions or parties. Thus, the majority in the Commission will be conservative, but it is not automatic and there will be members from socialist and liberal parties. And the programme of the Commission will be set up by its members. Based on this, some could argue that finally the main political line will be defined by the political stream supported by the majority of the electorate (through both the choice of their governments and the elections to the European Parliament) but to explain to the common voter how this works is not easy. So the voters do not see that their vote has a real influence on the direction the EU takes. And the imperfections of the national vote (that you vote a general direction and a government may have individual measures and even policies you do not like but there is no party with whom you can 100% agree) is also present.
As explained in the previous post, the EP elections in Hungary had a domestic significance in spite of the fact that the national elections were less than two months before. It is more interesting to examine the reactions of the winner of both elections, the governing FIDESZ party to the nomination of Juncker. Of course, during the election campaign they did not mention the topic, it would have been couter-productive. But immediately afterwards, Orbán already declared that they do not support Juncker, who was the figurehead of Eurozone austerity, who is a "man of the past" and wants a Europe they do not want (i.e. too federalist).
And then Mr Szájer, MEP, explained (in the title of the article on the homepage of FIDESZ, the name of Juncker is incorrectly spelled since the 2nd June) the opposition in more popular terms: he repeated the antifederalist argument, that the interests of the nation states should be represented in the EU, but then recalled that during the government Juncker in Luxembourg, Hungary was significantly attacked. He called Asselborn, then foreign minister of Luxembourg the member of Juncker's party (which he is not) and also recalled that Viviane Reding attacked the Hungarian media law. Which in fact she didn't, she did deplore other laws which were more in her remit as European Commissioner and in this quality not reporting to Juncker. The latter mentioned this is his response.
Angela Merkel still appears to support Juncker, but left herself a back door: whe does not want to lose Britain for the EU. About this discussion next time.

"Suspension or no suspension?"

The tenth anniversary of the "big bang" enlargement and thus the accession of Hungary was also marked by some controversy. Some Court decisions against Hungary in infringement procedures (I will return to these later) and a controversy about disbursement of EU funds. So let's now speak about this and return to a summary of these ten years later.

The European commission is asking for additional information on the new system of managing EU funds in Hungary and asked the Hungarian authorities not to send new requests for disbursements (invoices) to the Commission before the workings of the new system is clarified. This is not a suspension of payments in the sense that payments on already submitted claims are going to be done. It is quite logical, these funds were disbursed under the old system which was working in a way (according to information from OLAF, there were twelve cases where OLAF proposed further follow-up (which can mean criminal prosecution, recovery of amounts paid or disciplinary action). The situation is that OLAF cannot directly take disciplinary action or initiate prosecution, it is up to the national authorities do it. The low percentage of criminal charges brought by the national prosecutors against fraudsters embezzling EU funds was the reason why the Commission proposed to set up a European Prosecutor's Office which would bring in these charges.

The Hungarian change came – and this shows the ignorance or lack of political feel, or even worse, lack of interest or understanding towards European developments – at an inopportune time: the Commission was strongly called upon in the report of the Court of Auditors and the discharge resolution (which accepts the report on the previous year and evaluates the management of the EU budget) by the Council and the Parliament to do more to tackle the loss of EU funds due to irregular and/or fraudulent claims for reimbursement submitted and not controlled by the member states.

The background is that while administrative expenditure and in general expenditure areas where the Commission directly spends EU money, get since years a "green" mark from the Court of Auditors, meaning that error rates are below the 2% materiality limit, i.e. are in the normal range, in the area of agricultural and structural funds, there is an error rate which is significantly beyond that. And the reason is that the member states' implementing and audit authorities do not provide the assurance requested that this spending really happens also in the quality expected. Unjustified costs are paid, documentation is lacking or erroneous affecting more than the (in)famous 2% (the materiality limit of 2% means that this is the level of errors which is considered a level where the cost of introducing additional controls is exceeding already the savings (improvement) which could be expected from them, and therefore this level of error is considered as inevitable). It can be disputed whether this level really is at 2% (some suggest it may be higher in complex areas), it is commonplace, however, that the authorities of the member states are too lenient towards their beneficiaries – among others because beyond the obvious economic interest, there is a political pressure to spend the funds assigned. This is evidently visible in Hungary, where the slow catch-up at the start makes the rate of spending an obvious target, in particular as the negotiations on the 2014-2020 financial framework did not result in a spectacular success for the government, so they want to differentiate themselves from the previous government by spending better.

So the Commission is finally planning to introduce a stricter monitoring and re-auditing of the implementation of EU funds by the member states, and it was in this process when the announcement by the Hungarian authorities to further centralise the implementation system and eliminate some actors in it came. And it is clear that at least a side-effect of this (if not the objective) will be less hassle – which would be nice if it would eliminate administrative hassle and unnecessary complications, on which the Commission is also working – and a quicker spending. This, however, entails more risk of irregularities being left unnoticed. And this risk – and weakening of the control system - the Commission cannot afford when its main task is to reinforce controls. Had the Hungarian decisionmakers taken this into account, we were better off now.

Other conflicts between the EU and Hungary

The excessive deficit procedure was not the only point of conflict – in fact not even the main one – between the EU and Hungary. And although some people in Hungary complain that the EU has lost leverage on Hungary by letting it out of the procedure, I would not support measures designed for economic purposes to be used on political disagreements. First of all, this would further fuel anti-EU propaganda, but probably also anti-EU sentiment in Hungary and could also lead to a legal defeat of the EU which would harm its prestige even more. I also doubt whether the EU is the right institution to be judge and even less one fighting party in political conflicts in Hungary. There are, however other pending questions – the fourth amendment of the fundamental law (ex constitution) and also the general questions around the measures limiting democracy and political freedoms, the Tavares-report (or in Hungarian ) and the article 7 procedure it proposes (working documents can also be found here ). The Commission on its part indicated that infringement procedure may be launched because of the fourth amendment (which in Hungary has a totally different connotation than the fourth amendment of the U.S. constitution). Of course to launch of the article 7 procedure is not so simple. It can be initiated by one third of the Member States, the Parliament or the Commission. The Council will most probably not initiate it, the Commission is reluctant to apply the „nuclear option”, in particular as this – and the Romanian – case supports strongly the quest for a less drastic but more flexible tool for the Commission to sanction a breach of European values (mentioned in Article 2 of the Treaty on the European Union). (The Commission also wants a framework be created to analyse the conditions for applying Article 7 .) Rui Tavares proposes this step to be taken by the Parliament. There are in fact three phases: Phase 1: The Council, acting by a majority of four fifths of its members after obtaining the consent of the European Parliament, may determine that there is a clear risk of a serious breach by a Member State of the values referred to in Article 2. Phase 2: The European Council, acting by unanimity on a proposal by one third of the Member States or by the Commission and after obtaining the consent of the European Parliament, may determine the existence of a serious and persistent breach by a Member State of the values referred to in Article 2, and Phase 3: The Council, acting by a qualified majority, may decide to suspend certain of the rights deriving from the application of the Treaties to the Member State in question, including the voting rights of the representative of the government of that Member State in the Council. Phase 2 can only be proposed by one third of the member states of by the Commission, i.e. the Parliament has no right of initiative in this phase. Phase 3 requires no specific initiative, it can be (but is not automatically) a consequence of phase 2. See: here So a majority in the Parliament and a four fifth majority in the Council is necessary even for the first phase (and unanimity in the European Council to start the second phase). This is not possible without consent of at least part of the members of the EPP to which FIDESZ belongs. Several analyses has appeared in the Hungarian press, in particular following the leak of a purported discussion on the Dubrovnik meeting of EPP leaders (where FIDESZ was not present) about extraditing the FIDESZ from the EPP. This was vehemently denied afterwards. In the following EP debate on Hungary – while in previous debates Joseph Daul, the leader of the EPP faction forcefully defended the Hungarian government – the EPP was represented only by Frank Engel, who resorted to general statements and was very lukewarm. (His contribution is only published in French ) It is, however, very doubtful whether ever the necessary majority will be achieved. The amendments to the Tavares report are arriving, so let’s wait what will be the final text. I retort from details of diplomatic and less diplomatic exchanges between Orbán and other conservative European leaders, as it is totally unforeseeable when they will decide to take steps and whether this will not be attributed to personal sensitivity rather than to political differences by FIDESZ propaganda.

Storms

Demonstration near to the National Museum in Budapest two days after the day of independence when - according to legend - the national poet of Hungary (Petőfi, born Petrovics) declamated the National song on the stairs of the Museum, Snowstorm on the roads (that's wha the demonstration was postponed), storms all over Europe and the U.S. around the fourth amendment (how classical this sounds) of the Basic Law of Hungary, The forint plunging in response to - not the nomination but the first measures of the new president of the Hungarian National Bank -. ANd the European Peoples Party invites Frigide Barjot (no typo) to perform before the press conference of Commission vice president Viviane Reding (who, by chance, belongs to the same grouping) ti express herself against the marriage of homosexuals which is just being admitted in France. These storms on the surface hide undercurrents which have more importance for the future. The European Parliament - including the majority of EPP MEP's votes against the compromise long term budget agreed between the member states (but fails to request an increase). Good news: a compulsory mid-term review with qualified majority voting which could mean that a minority of member states cannot stop the EU adjusting its budget to the - hopefully - favourable future economic conditions. Greater flexibility, real own resources are the two further demands and a fourth one, which is in fact an increase in the amount: settling the backlog between commitments (promises to pay) and payments, which grew every year as payment budgets were always lower that commitment budgets. In a time of continuous growth of the budget, this difference would cause no trouble as payments are also later than commitments and thus the increase automatically means that payments - coming partially from commitments in previous years - can be somewhat lower that commitments in any given year. But if the difference is bigger than covered by growth, or there is no growth, the situation aggravates. Meanwhile, a bail-out is agreed for Cyprus. 10bn EUR instead of 17bn, a further 6bn is to be covered by the depositors of Cypriot banks vie a tax on deposits which averages about 6,5%. The European Federalists Party and the blogger of Reuters are enraged. The Parliament did not have a say (well, the national Parliament of Cyprus will have, and Cypriots already staged a run on their banks), they complain. It must be admitted, it is an unorthodox move. But if we think about the methods other governments (whether bailed out by the EU or not) put their budgets right, it is a song. In Hungary, inflation is 6% per year - the same toll on the value of deposits, just to talk about us. Of course, this tax is just a one-off solution (or will it be annual? I doubt). But it soothes to some extent the "northern" citizens who are already very sour about "their money" bailing out "irresponsible" southern states. And, given the composition of Cyprus deposits, it may be well targeted to some who hid their fortunes there.

Youth guarantees

There are two European countries, Austria and Finland which guarantee, that if a young person is unemployed for four months, he/she should get a job, traineeship or re-training offer. This is basically different from the public work which is now the favourite job-creating tool of the Hungarian government. On proposal of László Andor , the commissioner for employment, social affairs and inclusion, the new Multiannual Financial Framework will contain a new youth employment initiative (this was the only addition to the proposal of the Commission on the European Council meeting which approved the Council position on the MFF the 8th February (see criticism about the deal and its enthusiastic reception in a Hungarian article ). And these 6 bn euros can also be used to establish this guarantee as the Council agreed the 28th February (see here . It will be used in the regions where youth unemployment is the highest. The youth guarantee initiative also has a Twitter stream. According to estimates by Andor, the programme would cost 20 billion Euros in Europe. This would mean proportionally 50 billion HUF in Hungary. Thus roughly the amount which has been just taken from the universities or less than half of the interest difference between market financing and an IMF loan (by the most conservative estimates). Further information about the Council negotiations on the MFF is available here while the European Parliaments position can be followed here . A third-party report about the presentation of Mr Van Rompuy and the responses to it shows the main controversies.

Votewatch: how the Council votes

Votewatch.eu has now started to follow votes in the Council although this is much more difficult. Surprising results: not only the U.K. but also Germany and Austria frequently voted against the majority (29, 16 and 16%, respectively). The U.K. actually also voted most against these two states and vice versa. The countries with the fewest "No" votes in the last three years (of which two were under the "liberation war" government of Viktor Orban) were Lithuania, Cyprus, Estonia, Hungary, Luxembourg, Romania and Slovakia. As far as Hungary is concerend, out of 10 negative votes, 2 fall to the period of the Orban government. The votes recorded are only final formal votes where the motion was accepted. Of course, "no" votes in case of rejected motions would count to be majority votes anyway. It also has to be noted that 65% of votes where a qualified majority was sufficient, unanimity was nevertheless achieved. (analysis based on European Voice

European Council - tasks for growth and jobs

Too much has been written about the financial stability pact (about budget discipline) and commentators are usually disappointed about the result achieved on the European Council the 30th January in further points concentrating on growth and jobs which were also on the agenda. J. M. D. Barroso, the president of the European Commission, published his presentation on the European Council and also his other materials (you have to go down the page as there are only newer items on it).
The presentation contains a series of important data and observations. I would call the attention to the balance data on page 3 and youth unemployment rates on page 8. The first one clearly shows that the 2011 surplus of Hungary is just transitional while youth unemployment in Hungary is in the mid-range of Europe.
It is worth looking at the nice chart on page 5. Hungary has red marks in the following areas in this chart:
Fiscal consolidation (interestingly long term sustainability is not red)
Fiscal framework
Taxation (I assume mainly collection of taxes and fighting tax evasion)
Active labour market policy
Labour market participation (the activity rate in Hungary is disastrous)
Business environment and SMEs (in spite of government rhetoric)
Public services and cohesion policy.
It is clear, given the dominance of big European players on the banking market that there is no red area in financial stability (although I doubt that the housing market in Hungary would be healthy but this is also caused by the perturbations due to the big foreign exchange housing debt and the fairly confuse measures trying to handle that.