* EU executive proposes taking 7.5 billion euros from Hungary
* Says remedies proposed by Hungary could work if well implemented
* 27 EU countries have three months to decide, no veto
* EU tests new democracy sanction for the first time
* Hungary pledges to meet all commitments to unlock EU funds (Adds response from Hungarian minister)
By Gabriela Baczynska and Gergely Szakacs
BRUSSELS/BUDAPEST, Sept 18 (Reuters) - The European Union executive recommended on Sunday suspending some 7.5 billion euros in funding for Hungary over corruption, the first such case in the 27-nation bloc under a new sanction meant to better protect the rule of law.
The EU introduced the new financial sanction two years ago precisely in response to what it says amounts to the undermining of democracy in Poland and Hungary, where Prime Minister Viktor Orban subdued courts, media, NGOs and academia, as well as restricting the rights of migrants, gays and women during more than a decade in power.
"It's about breaches of the rule of law compromising the use and management of EU funds," said EU Budget Commissioner Johannes Hahn. "We cannot conclude that the EU budget is sufficiently protected."
He highlighted systemic irregularities in Hungary's public procurement laws, insufficient safeguards against conflicts of interest, weaknesses in effective prosecution and shortcomings in other anti-graft measures.
Hahn said the Commission was recommending the suspension of about a third of cohesion funds envisaged for Hungary from the bloc's shared budget for 2021-27 worth a total of 1.1 trillion euros.
The 7.5 billion euros in question amounts to 5% of the country's estimated 2022 GDP. EU countries now have up to three months to decide on the proposal.
Hahn said Hungary's latest promise to address EU criticisms was a significant step in the right direction but must still be translated into new laws and practical actions before the bloc would be reassured.
Development Minister Tibor Navracsics, in charge of negotiations with the EU, said Hungary would meet all 17 of its commitments made to the European Commission to stave off the loss of any EU funding.
"Hungary did not make commitments to befuddle the Commission," Navracsics told a news conference. "We have made commitments that we know can be implemented ... therefore, we will not be facing a loss of funds."
Orban's government proposed creating a new anti-graft agency in recent weeks as Budapest came under pressure to secure money for the ailing economy and forint, the worst-performing currency in the EU's east.
Orban, who calls himself a "freedom fighter" against the world view of the liberal West, denies that Hungary - an ex-communist country of some 10 million people - is any more corrupt than others in the EU.
Navracsics said Orban's government would submit laws to parliament on Friday to establish a new independent anti-graft authority to monitor the public procurement of EU funds, with the body to be launched by the second half of November.
Hungary has also pledged to implement several other anti-corruption safeguards, including tighter rules on conflicts of interest, extending the scope of financial statements and broadening the power of judges to pursue suspected corruption.
Navracsics expressed hope that the Commission would be reassured by the implementation of the reforms and withdraw its proposed sanctions against Hungary by Nov. 19.
The Commission is already blocking some 6 billion euros in funds envisaged for Hungary in a separate COVID economic recovery stimulus over the same corruption concerns.
Reuters documented in 2018 how Orban channels EU development funds to his friends and family, a practice human rights organisations say has immensely enriched his inner circle and allowed the 59-year-old to entrench himself in power.
Hungary had irregularities in nearly 4% of EU funds spending in 2015-2019, according to the bloc's anti-fraud body OLAF, by far the worst result among the 27 EU countries.
Orban has also rubbed many in the bloc up the wrong way by cultivating continued close ties with President Vladimir Putin and threatening to deny EU unity needed to impose and preserve sanctions on Russia for waging war against Ukraine.
https://www.reuters.com/investigates/special-report/hungary-orban-balaton/ (Reporting by Gabriela Baczynska; editing by David Evans)