Budapest was confident on Monday that it would be able to prevent a reduction in EU funds as called for by the Commission over rule of law concerns.
The EU's executive on Sunday urged the Council to approve a €7.5 billion cut in cohesion funds to Hungary.
This, the Commission said, is the next step in the conditionality mechanism procedure it triggered against Hungary in April.
But Brussels also left the door open to a compromise, adding that if Budapest proceeds as scheduled with the 17 remedial measures it negotiated with the Commission the procedure could be stopped.
The measures include efforts to strengthen the process of awarding public contracts, eradicate conflict of interest among government officials and address weaknesses in the investigation and prosecution of cases regarding EU funds.
Tibor Navracsics, Hungarian Minister for Regional Development, told reporters that "this means, first of all, that no new negotiations are needed" to end the conditionality mechanism procedure against the country.
"And it also means that if Hungary fulfills the agreements and commitments reached in the negotiations, the Council's decision to sanction will not be adopted," he added.
In Brussels, however, reactions were somewhat more cautious.
Swedish MEP Malin Björk (The Left) told Euronews that "it was about time that the Commission takes resolute action against the corruption and dismantling of democracy in Hungary."
"I welcome this proposal from the Commission, which is in line with the European Parliament´s call to stop EU funding until Hungary no longer violates article 2 of the Treaty," she added.
The Socialists and Democrats group told Euronews they also "welcome the suspension of one-third of the amount originally foreseen for Hungary."
"It is imperative that cohesion money is spent following the European rules. With the level of corruption and nepotism we see in Hungary, it is clear for us that any disbursement of cohesion money is more than risky,"German S&D MEP Constanze Krehl said.
"Just last week, the European Parliament stated that the Hungarian government has no respect for democratic norms and standards. In addition, Hungary is not supporting the European Public Prosecutor's Office."
But their Greens/EFA colleague from Germany, Daniel Freund, said the Commission "should have frozen all the European funds for now because we know that all programmes and all budget lines are targets of corruption of Orban, his friends and family."
"And then of course what we need is an ambitious plan to repair the rule of law, to repair the spending of money in Hungary so there is no more corruption. But also there are huge issues with democracy and free media. So we finally need a decisive action from the Commission to make sure that Hungary becomes a democracy again," he also told Euronews.
For the punitive measure to go through, it first needs to be approved at the Council level by a qualified majority.
Although a much easier threshold to attain than unanimity — Poland and Hungary have in the past protected each other from possible EU sanctions — it remains unclear whether most member states would vote to punish Budapest.
Portuguese MEP José M. Fernandes from the EPP Group took to Twitter after the Commission's announcement on Sunday to state that "respecting the rule of law is not an option: it is an obligation" and to offer his "congratulations to the European Commission."
"Let's hope the Member States don't block it!" he went on.
"The Council must decide without delay. Be reminded that, for the proposal of the Commission to be approved, only qualified majority is needed. So now we will find out who effectively stands up for the rule of law."
'The outlook isn't good'
Diplomats from several member states have told Euronews that while there is some evidence that the Hungarian government is now taking the threat from Brussels seriously, they remain "cynical."
"We have to see how solid these changes are - I’ve no doubt they’ll be able to impose a whole slew of reforms; the Orban regime has full control over parliament, the judiciary, the public sector - so it’s relatively easy to do this, but will they be permanent, and will they be effective?" one diplomat said.
"One thing we can say is that we've found the pressure point for Orban, I fully subscribe that Hungary is taking this seriously now, because the Hungarian economy is in the tank and he needs the money."
This comes as Budapest and Brussels are in the middle of negotiations over the country's recovery plan.
Hungary is the only member state not to have had its plan approved by the Commission to receive a share of the €809 billion pot at member states' disposal to make their economies more sustainable.
Plans have to be approved before the end of the year and there is growing frustration in the EU that the government of Prime Minister Viktor Orban is using "obstructionist" policies to hinder progress in several areas, particularly relating to the Russian invasion of Ukraine, in order to secure concessions from Brussels.
"There's a whole host of issues where Hungary is preventing important decisions, there was the oil embargo on the sixth sanctions package, the removal of Patriarch Kirill from the sanctions list, the refusal to support a rise in EU corporate tax," said a diplomat.
Patriarch Kirill, the head of Russia's Orthodox Church and a strong supporter of Russian President Vladimir Putin's invasion of Ukraine, was excluded from the last package of EU sanctions against Russia after Hungary's objection.
In recent days, the Hungarian government refused to support an EU call for a UN Human Rights Council investigation into war crimes committed by Russia in Ukraine.
The other 26 member states will coordinate the call as individual countries, rather than a formal EU resolution.
Whether this will impact the way member states vote on the punitive measure envisaged by the Commission remains to be seen.
Poland has already stated it will stick by Orban. Hungary may also be able to rely on the far-right government in Italy under Giorgia Meloni, if she is elected on 25 September.
But one official from a member state told Euronews that "overall, the outlook isn’t good. It’s not limited to just corruption - the backsliding had been going on for years now, but I won't lose hope that we can protect the EU from these autocrats."