How Hungary's elite made a fortune from the EU

Associates of prime minister Viktor Orbán have secured valuable EU funds, prompting calls for Brussels to more rigorously regulate its subsidies.

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The tiny countryside village of Felcsút has a knack for producing very wealthy men. In fact, it is connected to two of Hungary’s most powerful individuals, prime minister Viktor Orbán and Lőrinc Mészáros, his childhood friend.

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Before Orbán started his second term as prime minister in 2010, Mészáros was the proprietor of a small gas-fitting business in Felcsút. Fast forward a decade, and he is none other than Hungary’s richest person (valued at €1.35bn). Mészáros's empire now includes over 100 companies in farming, construction, media and wine, thanks to the slew of contracts awarded to him by the government, and the vast majority of Mészáros’s earnings come from projects funded by the EU.

Mészáros amasses wealth through government contracts
Number of public tenders won by companies owned by Lőrinc Mészáros

Asked by a journalist how he had grown his business faster than Mark Zuckerberg’s Facebook, Mészáros retorted: “I am most likely smarter than Mark Zuckerberg.” A spokesperson for Mészáros told the New Statesman that he rode the wave of Hungary’s impressive GDP growth over the last decade, but was a “wealthy man” long before the rise of Orbán, with whom he has “never had any business relationship with”.

The rapid success of Mészáros could not have happened without a state captured by the political elite, says József Péter Martin, executive director at Transparency International Hungary. “The Hungarian government has been systematically using EU funds to pay [associates]. It’s been a big problem for much of the last decade, and has only become worse.” 

Mészáros’ spokesperson told the New Statesman that his companies won public contracts fairly and transparently, and notes that in 2018, small and medium-sized enterprises (unlike his own) won the vast majority of public contracts. 

However, research from the Corruption Research Center Budapest (CRCB) shows that Mészáros’s companies won around 3 per cent of the value of all public tenders that year and that these were almost entirely financed by EU funds.

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The European Anti-Fraud Office (Olaf) has been very busy in recent years - and Hungary leads Olaf’s list of member states where irregularities have been found in EU funds between 2015 and 2019.

Violations such as these, on top of other political abuses, have at long last led Brussels to harden its stance against its most illiberal members: Hungary, and to a lesser extent, Poland.

In December 2020, following a gruelling deadlock, EU leaders signed off the historic $2.2tn budget and seven-year stimulus package, accompanied by a new "rule of law" (anti-corruption) mechanism that Budapest and Warsaw had opposed for months – a telling move in and of itself.

While imperfect, and still subject to approval by the Court of Justice, the mechanism’s successful inclusion in the budget agreement is a historic turning point. In the years to come, the EU will now be able to punish members that abuse its funds, and without a unanimous vote from all parties.

These funds have, for too long, been exploited by numerous European governments. However, none have mastered the art of capturing EU taxpayer money as well as the Hungarian government. Here are its broad brushstrokes.

Step 1: monopolise the market

Orbán and the Hungarian government have become synonymous. The last decade has seen Fidesz, the ruling party, take ironfisted control of the country’s state apparatus, one constitutional reform at a time. Fidesz has been contacted for comment. 

With its highest courts no longer independent and its free press under attack, Hungary looks evermore like the the EU’s first rogue state, an avowedly anti-Brussels “illiberal democracy” (as Orbán once described it).

As well as consolidating Fidzesz’s power, Orbán's entourage took control over key parts of the economy. Zsuzsanna Szelenyi, a Richard von Weizsäcker fellow at the Robert Bosch Academy and a former Hungarian MP says: “[Over the last decade], his oligarchs bought huge stakes in construction, agriculture and tourism, areas that receive huge EU funding. They aggressively acquired hundreds of Hungarian companies in these spheres. It was a land grab.” 

With this stranglehold in place, Orbán's elites became perfectly positioned to benefit from EU subsidies in these key sectors. It’s worth remembering that a whopping 40 per cent of annual funds from Brussels go towards agriculture, representing $65bn for the bloc’s countries. Construction and tourism also receive enormous sums.

Step 2: win state contracts

So why is it so easy for Orbán-loyalists to access this money? Part of the problem is that the EU does very little to regulate how its members distribute the eye watering sums it provides them each year. In Hungary, these funds are used for around 60 per cent of the public procurement process  – a process that has become utterly compromised.

“Orbán's government is the entity that distributes the EU funds, and there is no proper oversight from an independent body,” says Martin from Transparency International. “So there is often no real competition for public bidding contracts since many industries, like construction, are monopolised by the government's cronies and oligarchs – who frequently overprice the projects as well.”

There are often close ties between all the bidders, meaning that all of them benefit, according to the Corruption Research Center Budapest (CRCB). Following this pageant show of a bid, pro-Orbán companies have been accused of hiring one another as indirect or direct suppliers for the given project. These methods are used in other parts of the EU too, and are especially prevalent in Russia.

To put the scale of this practice into numbers, it is estimated that the ten business elites closest to Fidesz have won public procurement contracts worth nearly $8bn since Orbán assumed power in 2010, according to a 2018 report from Reuters.

In fact, the financial success of these elites is so guaranteed, that when one of them buys a company, traders scramble to buy its stocks. For example, when in early 2017 Mészáros bought into Hungarian holding company, Konzum, it became the world’s best-performing stock at the time.

Konzum became world’s best-performing stock after Mészáros invests
Daily closing share price, Hungarian Forinths
en.economicdata.ru/

The Hungarian government’s use of EU money has been well researched by numerous reports from Transparency International. “The European Anti-Fraud Office has uncovered evidence of [wrongful] distribution of EU funds in Hungary and public procurement, but the office has no teeth – so usually nothing happens,” says Martin.

Olaf’s most concrete and successful case was in its investigation of Elios, a company that won partially EU-funded contracts worth €65m to install LED street lights across Hungary. Olaf found “serious irregularities” in the contracts awarded to Elios, which at the time was co-owned by Orbán's son-in-law István Tiborcz (now one of Hungary’s most successful businessmen, since Orban’s rise). Despite prices of LED bulbs falling at the time, some of the lamps Elios installed proved to be 56 per cent more expensive than usual. Tiborcz has denied any wrongdoing. Tiborcz’s main business, BDPST Group, has been contacted for comment.

“Olaf brought a dossier of evidence, but the national authorities claimed to find nothing. The EU Commission stepped in to negotiate that the Hungarian government pay some money,” says Martin. Once again, the taxpayer was the victim, he adds.

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Instances of “fraud and possible corruption” also led Olaf to recommend that Budapest repay more than €280m of funding that was used to build a metro line in the Hungarian capital.

Orbán has disputed Olaf’s findings. For him, they are just another attack from the ‘global political overlords’ in Brussels, those ‘pro-immigration liberal elites’.

Note: This article has been updated to clarify a comment made by József Péter Martin​.

Sebastian Shehadi is political editor and senior editor at Investment Monitor.​

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