After meetings with Hungarian Prime Minister Viktor Orban, NATO Secretary-General Jens Stoltenberg told reporters in Budapest on Wednesday that he “accepts” the position of the Central European country not to participate in NATO efforts for Ukraine.

Orban, seen as the closest of any EU leader to Russian President Vladimir Putin, has persistently obstructed the bloc’s efforts to supply Kyiv with arms and financing.

“No Hungarian personnel will take part in these activities and no Hungarian funds will be used to support them,” Stoltenberg said.

“At the same time, the prime minister has assured me that Hungary will not oppose these efforts, enabling other allies to move forward, and he has confirmed that Hungary will continue to meet its NATO commitments in full,” he added.

The NATO chief said he and Orban had “agreed modalities for Hungary’s nonparticipation in NATO’s support for Ukraine” but did not provide details.

Consensus

This year, Stoltenberg announced that NATO is seeking to guarantee long-term weapon deliveries to Kyiv and establish a 100-billion-euro ($108bn) fund to pay for them.

However, Hungary was quick to express its opposition.

The alliance hopes to seal an agreement on the proposals at a summit next month, and NATO decisions require consensus among its 32 members.

Western governments have been unhappy with some of Hungary’s positions since the start of the war in Ukraine, including a refusal to join some European Union sanctions against Russia or send arms shipments to Ukraine.

Nationalist-populist Orban has said he does not wish to allow “geopolitical tensions” surrounding the war to negatively impact Hungary’s relations with Russia, which include strong energy ties.

The meeting on Wednesday came amid efforts by Western allies to mobilise better support for Ukraine, both diplomatically and militarily.

The United States is planning a summit in Washington, DC, next month at which its fellow NATO members are expected to agree on a roadmap for providing long-term assistance and military training for Ukraine’s military.

During a joint news conference with the presidents of Latvia and Poland in Latvia’s capital, Riga, on Tuesday, Stoltenberg said he wants NATO allies to commit to a “long-term financial pledge” to Ukraine.

The military alliance has provided about 40 billion euros ($43bn) annually since the Russian invasion in February 2022.

“We must maintain this level of support for as long as necessary,” Stoltenberg said. “Credible, long-term support sends a clear message to President Putin that he cannot wait us out.”

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Commissioner Johannes Hahn, in charge of Budget and Administration, said the figure amounts to 65% of the commitments for three operational programmes under cohesion policy and about a third of cohesion funds the country received from the EU budget.

EU cohesion funds are given to poorer European countries to help promote growth and employment, while operational programmes surround more specific investment projects.

For Brussels, the recommendation to the Council to adopt this punitive measure is the next step in the rule of law mechanism process that it triggered against Hungary in April.

The mechanism, which was approved by the European Court of Justice just weeks earlier following a challenge from Budapest and Poland, allows Brussels to impose financial sanctions on member states “to protect the budget” if they are deemed to have breached core EU values.

‘A risk to the budget remains’

The decision to impose the financial penalty was taken unanimously by commissioners, Hahn said, during their College meeting exceptionally held earlier in the morning.

Hahn emphasised that Budapest has outlined 17 remedial measures since Brussels triggered the conditionality mechanism.

He said that these “should in principle be capable of addressing the issues described in the notification,” including “systematic irregularities” in the public procurement process, conflict of interest from government officials and weakness in the investigation and prosecution in cases regarding EU funds.

But Hahn also stressed that this is only if they are “implemented accordingly”, that the timeline remains “very tight” and that concrete changes would also take time to be rolled out in practice

“A risk for the budget at this stage remains, therefore we cannot conclude that the EU budget is sufficiently protected,” he went on.

The Council now has one month to decide whether to go ahead with the Commission’s recommendation. If it does, Hungary will also be given one month to reply — although it can request an extension — which means that the earliest the Commission could freeze funds to Budapest would be 19 November.

The decision at the Council level will only require a qualified majority and not unanimity to be adopted so Poland, with which Hungary had in the past struck a deal to block any punitive actions over rule of law, will not be able to prevent the financial penalty on Hungary.

Yet, the Commission left the door open to compromise as Hungary has committed to rolling out the majority of its remedial measures by 19 November.

The measures Budapest agreed to take to address the Commission’s concerns include the establishment of a new and independent Integrity Authority and of an Anti-Corruption Task Force, the modification of the criminal code to allow judicial review of prosecutorial decisions, the rollout of an  Electronic Public Procurement System, and training to SMEs and micro enterprises on public procurement practices.

A senior EU official said that “very intensive dialogue took place” between Budapest and Brussels over the summer over these remedial measures and that “it is going to be an extremely busy period” as Hungary “now comes forward through legislation and rulemaking”.

He noted that the country has “actually stuck to these deadlines” so far.

Ultimate decision is ‘purely political’

German MEP Daniel Freund (Greens) has criticised the announcement as “not going in the right direction” arguing that the “Commission is showing Orban [an] easy way out: sham reforms”.

He also noted that €27 billion of EU funds would meanwhile continue to make their way to Hungary.

Milan Nic, a senior fellow at the German Council on Foreign Relations (DGAP) nonetheless stressed that “for the EU Commission, it’s a new territory: this is for the first time in its history to propose suspending the disbursement of EU funds to a member state.”

“The recommended amount is substantial; it will put the Hungarian government under pressure to implement additional measures against systemic corruption and increase transparency in the disbursement of EU cohesion funds,” he told Euronews.

But he also noted that chances are a compromise will be found.

Piotr Buras, a senior policy fellow and head of the Warsaw office for the European Council on Foreign Relations (ECFR), similarly expressed doubt that the decision, which he described as “a demonstration of the Commission’s resolve to remain tough regarding the violations of the rule of law” will result in fewer funds for Budapest.

“The ultimate decision requires the qualified majority in the Council and is thus purely political. Many countries will be wary of taking such a drastic step – we have seen in it in the Article 7 procedure where it has not been possible to command 4/5 majority to state that there are severe risks for the rule of law in Poland or Hungary, not to speak about financial cuts,” he told Euronews.

“If Hungary takes some reform steps, which it actually has already done, I would expect a deal which will make it possible for the Council to reject Commission’s motion,” he added.

He stressed that the ongoing negotiations between Brussels and Budapest” over Hungary’s Recovery Plan are “much more important.”

Hungary is the only member state not to have had its plan to receive some of the €800 billion of post-COVID recovery funds approved by Brussels. The Commission has asked for reforms in exchange for green-lighting the plan.

“I would expect that Hungary commits to some further reforms before the end of the year so that the Council rejects today’s recommendation and the Commission can ultimately approve the Hungarian Recovery and Resilience Facility (RRF) plan. However, this would not equal the disbursement of the RRF money as Hungary would still have to deliver on the commitments. This will be a face-saving solution for all sides. And a typical EU deal,” Buras said.

Nic shared the analysis, arguing that “the overall dynamics in both tracks [i.e the conditionality mechanism and the RRF negotiations] between Brussels and Budapest is towards some kind of a compromise.”

Sunday’s announcement comes just three days after MEPs declared that Hungary is no longer a fully functioning democracy but a “hybrid regime of electoral autocracy” instead.

In their resolution, European lawmakers put the blame for the rule of law drift in the eastern European country squarely on Prime Minister Viktor Orbán.

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Budapest has sharply criticized the European Union for imposing sanctions on Russia over its invasion of Ukraine, saying they have failed to weaken Moscow meaningfully while causing a surge in food and energy prices.

Combined with falls in the forint to record lows, the price rises have sent Hungary’s inflation to two-decade highs, forcing the National Bank of Hungary to hike its base rate sharply to 11.75%.

Announcing the price cap extensions beyond their original Oct.1 expiry, Orban’s chief of staff, Gergely Gulyas, also said the government would extend a cap on mortgage rates that were originally due to expire at the end of this year, by “at least six months”.

“We now assess that as long as the EU sanctions are in place, there is no realistic chance for an improvement,” Gulyas told the media briefing.

Orban’s government has also decided to launch a support scheme for energy-intensive small businesses, covering half of the increase in their energy bills compared with last year’s levels, Economic Development Minister Marton Nagy said.

He said the government would also launch an investment support scheme for small businesses to help them improve their energy efficiency and cut costs.

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The right-wing nationalist particularly opposes immigration by Muslims.

Hungary’s population is falling by 32,000 a year. Women there have fewer children than the EU average.

As part of the measures, young couples will be offered interest-free loans of 10m forint (£27,400; $36,000), to be cancelled once they have three children.

Mr Orban said that “for the West”, the answer to falling birth rates in Europe was immigration: “For every missing child, there should be one coming in and then the numbers will be fine.

“Hungarian people think differently,” he said. “We do not need numbers. We need Hungarian children.”

While Mr Orban was delivering his state of the nation address, the latest demonstrations were being held in Budapest against his government’s policies.

About 2,000 people gathered in front of his office, while others blocked one of the main bridges across the Danube river.

Correspondents say the biggest applause during Mr Orban’s speech was for his announcement of a seven-point plan to increase the birth rate.

Other points in the government’s plan include:

• A pledge to create 21,000 nursery places over the next three years
• An extra $2.5bn to be spent on the country’s healthcare system
• Housing subsidies
• State support for those buying seven-seat vehicles

Mr Orban finished his speech with: “Long live Hungary and long live the Hungarians!”

The average number of children a Hungarian woman will have in her lifetime (fertility rate) is 1.45. This puts the country below the EU average of 1.58.

In 2016, France had the highest fertility rate in the EU – 1.92 children per woman – and Spain and Italy had the lowest at 1.34, the EU statistics agency Eurostat reports.

Niger, in West Africa, has the highest fertility rate in the world, with 7.24 children per woman.

Increasing birth rate ‘very difficult’

The BBC’s Nick Thorpe in Budapest writes:

Critics of the government say its package and pro-family policy so far target well-off families and ignore the Hungarian poor, including an estimated 750,000 Roma (Gypsies). Tax relief does little to help families who pay little tax anyway.

Housing subsidies of €35,000 (£30,666) were offered to families able to invest a similar sum of their own – but few Roma have such savings.

The nationalist Fidesz government has cut welfare payments and reduced the number of months those made unemployed can claim for.

The population has been falling steadily, from a peak of 10.7 million in 1980, to below 9.7 million today.

About 600,000 Hungarians have moved to western Europe in the past decade – it is impossible to calculate how many will return.

“Increasing the number of births is very difficult, because we have less and less women of child-bearing age,” State Secretary for Families Katalin Novak told the BBC. That number is set to fall by 20% in the next decade. “So less and less women need to have more and more babies.”

The government’s new package, she emphasised, is based on the number of babies couples would actually like to have, and then to encourage them with financial help. The aim is to increase the fertility rate to 2.1 by 2030.

How do other countries help mothers?

Many other countries with relatively low birth rates have introduced extra payments and other benefits for mothers.

Russia’s birth rate has been declining for decades: the population fell from 149m in 1991 to 140m in 2018, and the median age has risen from 33 to 39.

So, to help the poorest families, in March 2018 the government announced monthly payments of 10-11,000 roubles (£118-£130; $152-$167) until their first child reached 18 months old. A poor family also gets a one-off payment of 300,000 roubles for each additional child born.

Serbia, one of Hungary’s neighbours, has one of the world’s fastest-shrinking populations. It has seven million people and a median age of 43.

Last March it announced that new mothers would get a one-off payment worth £740 ($956) for their first child, monthly payments of £74 ($96) for the second child for two years, and further payments for three or more children.

The birth rate in Italy is among Europe’s lowest, along with Cyprus and Spain. Italy gives mothers an allowance of €80 per month (£70; $90) for each child born. The poorest families get a monthly allowance of €160 per child.

In Germany more babies were born in 2016 than in any year since 1996. But Germany has also put more incentives in place for couples to have children. Parents have a legal right to a nursery place once their child is one year old.

Germany has a new law, the “Good KiTa Act”, granting lower childcare fees for parents who cannot afford the full price, and a fee exemption for parents who receive a child allowance and housing benefits.

Low birth rates are also worrying governments in East Asia.

The marriage rate in South Korea is at its lowest since records began – 5.5 per 1,000 people, compared with 9.2 in 1970 – and very few children are born outside marriage.

According to World Bank data for 2016, just a few countries, including Singapore and Moldova, have a fertility rate as low as South Korea’s – 1.2 per woman. The replacement rate – the number needed for a population to remain level – is 2.1.

Fertility rates are also low in China (1.6) and Japan (1.4).

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