Beyond Latest EU-Hungary Tussle Is a Deteriorating Rule-Of-Law Picture Across Europe

Flags of Hungary and the European Union fluttering together on a clear day

The EU institutions are once again locking horns with Hungary on rule of law issues, with the European Commission launching legal action in early February over Budapest’s so-called “sovereignty law”. The controversial legislation, Brussels argues, violates a wide range of EU standards and rights, lacks judicial oversight and could be weaponised against the Hungarian political opposition.

This dispute is just the latest round in a long-running face-off between Budapest and Brussels over rule-of-law issues. Yet the recently-published 2023 edition of Transparency International’s Corruption Perceptions Index (CPI), while confirming Hungary’s status as Europe’s perpetual problem child, also further illuminates how rule-of-law erosion is a growing problem across the continent—with some of the EU’s newest member states and some of its most established democracies alike putting up red flags.

Hungary’s troubled neighbour: a poster child for graft’s chilling effect on the private sector?

Accompanying Hungary at the bottom of the EU pile, just a few points higher on this year’s CPI, is Bulgaria. The country is currently being sued for a record $3 billion in damages at the World Bank’s International Centre for Settlement of Investment Disputes (ICSID) for the alleged politically-motivated persecution of a private company – a saga that, in a nutshell, captures the price Sofia is paying for its halting progress in cleaning up its act.

In January 2023, the firm in question, international fintech company Nexo, saw their Sofia offices raided on the orders of then-Prosecutor General Ivan Geshev on highly-dubious grounds. From the outset, the investigation has been interpreted as a cynical act of political revenge, as Nexo employees had previously donated funds to the reformist, anti-graft We Continue the Change party – which happened to be on the verge of forming a new government at the time that Geshev, whose connections to oligarchs and corrupt politicians have long been reported, initiated the probe.

The Nexo investigation was dropped less than a year later, after Bulgarian prosecutors found no evidence of any criminal activity. Nevertheless, this legal exoneration arrived after the infliction of what the private firm has characterised as serious reputational and economic harm– according to Nexo, the investigation slashed its shareholder value by disrupting a planned U.S. stock market listening and a sponsorship deal with a top-flight European football club. Given these “significant material and reputational damages”, it’s unsurprising that Nexo is seeking equally substantial damages from the Bulgarian state. If the ICSID finds in Nexo’s favour, it would be a true illustration of the costs of institutionalised corruption and politicisation of the judiciary. Losing the lawsuit could strike a devastating blow to cash-strapped Bulgaria, already the EU’s poorest member state—the $3 billion in damages would represent roughly 2.5% of the country’s whole GDP.

Fragile hope from Sofia’s new government

Amidst the fallout from Bulgaria’s endemic corruption, the government which took power last June—a coalition between the We Continue the Change-Democratic Bulgaria (PP-DB) and GERB parties–offered the country tentative signs of hope. Prime Minister Nikolay Denkov launched his agenda with a clear political commitment to complete Bulgaria’s Western integration, namely by securing its entry into Schengen and the eurozone – twin milestones long impeded by ongoing rule-of-law issues. At the end of March, Bulgaria will notably join Schengen for air and sea border crossing, while the government remains optimistic about eurozone accession by next January. 

What’s more, the European Commission officially ended the Cooperation and Verification Mechanism (CVM) that had been imposed on Bulgaria’s judicial system since its EU accession in 2007, while European Justice Commissioner Didier Reynders recently expressed support Sofia’s emerging anti-corruption reform efforts, including bolstering the Prosecutor General’s accountability.

Nevertheless, significant problems remain. Geshev was finally ousted as chief prosecutor, a positive development given his extraordinarily chequered background—yet analysts rightly flagged the questionable process by which he was dismissed, noting that it “reeked of political intrigue…the heart of the judiciary’s – and the country’s – problems”. What’s more, Bulgarian pundits have cautioned that genuine improvement has been halting at best, citing expert criticism of Sofia’s constitutional reform and warning that the newly-created anti-graft remains susceptible to political weaponization itself.

Compounding its internal issues, Bulgaria’s pro-Western government is simultaneously having to fend off persistent Kremlin interference, with Moscow instrumentalising corrupt, pro-Russia politicians to destabilise the fragile coalition and further its interests – a situation that calls for enhanced vigilance in Sofia and bolstered cooperation with Brussels to maintain Bulgaria’s democratic trajectory.

Looking beyond the usual suspects

Yet, beyond the longstanding, unresolved issues in countries like Hungary and Bulgaria, Transparency International’s latest CPI showed that even some of Europe’s highest-ranking democracies face significant corruption and rule-of-law challenges. Countries such as Sweden, Iceland, the Netherlands and the UK posted their lowest-ever scores, while Austria and Luxembourg have also experienced drastic dips.

Incredibly, out of 31 European countries evaluated in this year’s report, only six have achieved substantial improvements over the past decade. Reflecting on this alarming downturn, Transparency International’s Flora Cresswell has cautioned that “rollbacks on checks and balances leave the door open to corruption,” while emphasizing the need for governments to implement robust safeguards for protecting their judiciaries from political interference. 

As this year’s CPI spotlights, Dutch authorities are under fire for failing to prosecute Shell in the high-profile Nigerian oil bribery case. What’s more, Sweden’s declining performance is largely attributable to a series of money laundering scandals – most notably at Swedbank – which have partially inspired the creation of the EU’s anti-money laundering authority, while Austria’s anti-graft efforts have been severely damaged by a string of government corruption scandals culminating with ‘Ibiza-gate’ in 2019.

Given the grim picture which the CPI paints of the rule of law across Europe, EU institutions will need to shine a good governance spotlight on a wider range of member states—while, of course, continuing to hold frequent offenders like Hungary to account. As Commissioner Didier Reynders asserted in February, with the prospect of EU enlargement looming, the bloc must show a united front and set an inspiring democratic example for its future members.

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