EU Confronts Opponent Within, Who’s Bolstered by Putin’s Oil

(Bloomberg) — The European Union unleashed an unprecedented punishment on one of its own, signaling that patience has worn out with Hungary — and Prime Minister Viktor Orban’s determination to engage with Russian President Vladimir Putin, while eschewing the democratic values of the bloc, makes the move all the more resonant.

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But Hungary claimed it was ready to abide by the EU’s requirements in order to unlock both reconstruction and cohesion funds and would strike a deal with the bloc before year-end, Justice Minister Judit Varga said in a Facebook post late Monday.

Varga pledged that the cabinet would focus on implementing and enforcing its commitments, and she “submitted to Parliament a law package amending the legislation on cooperation with the European Anti-Fraud Office and on public interest trusts performing public tasks.”

The Hungarian forint, which has declined 9% against the euro this year over the uncertain outlook for EU funds, rose 1.4% on Monday, bolstered by the prospect that Brussels and Budapest could eventually reach an agreement on disbursing the money.

For more than a decade, the EU has unsuccessfully tried to keep Orban in the fold while mostly looking past his antagonistic approach to the bloc, including repeated efforts to hamper sanctions on Russia. On Sunday, the EU changed tack and threatened to freeze 7.5 billion euros ($7.5 billion) earmarked for Hungary unless it takes steps to curb fraud and corruption.

It’s a coincidence that the financial penalties come in the midst of Russia’s invasion of Ukraine, but the war has put Orban’s cozy relationship with Moscow in a new light and has forced the EU to address Hungary’s willingness to flaunt the rule of law in a more aggressive manner.

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Europe is entering a critical phase, with energy shortages set to increase the strains on the fragile unity that the 27 EU members have managed to maintain since the February invasion. Yet while most member states have been engaged in a desperate struggle to secure alternative gas supplies before the winter, Orban has deepened his country’s ties to the Kremlin, exploiting the exemptions he demanded from EU sanctions to secure increased imports of gas from Russia.

Orban’s popularity is also supported by some of the cheapest gasoline in Europe thanks to a price cap that is largely possible because of low-cost Russian imports. Hungary’s oil pipeline to Russia is also exempt from EU…