Hungary had not done enough to bring its budget gap below the EU's agreed ceiling in a sustainable way - European Union finance ministers said on Tuesday, opening the way to a freezing of payments of EU funds to Hungary from 2013.
The ministers' decision, endorsing a European Commission assessment, is the next step in a long process that has never seen meaningful action against member states, most of whom have broken the 3 percent of gross domestic product ceiling.
But it comes at a time when Hungary is under increasing pressure from across Europe to overturn two years of legislation by the ruling Fidesz party that some critics have termed an attack on democracy.
Like Belgium, Cyprus, Malta and Poland, Hungary had until this year to bring its budget deficit sustainably below 3 percent under the EU's excessive deficit procedure.
While the Hungarian deficit is set to come in below the limit this year, the Commission has said it will only be so thanks to one-off measures and that the shortfall will grow again in 2013.
"The Council (of finance ministers) today adopted a decision establishing that Hungary has failed to comply with the Council's recommendation on measures to be taken in order to bring its government budget deficit below the EU's reference value of 3 percent of GDP," the ministers said in a statement. "Hungary cannot face sanctions under the excessive deficit procedure as it is not a member of the euro area. But for beneficiaries of the EU's cohesion fund, such as Hungary, failure to comply with the Council's recommendations can lead to the suspension of cohesion fund commitments," they said.
It is now up to the European Commission to impose financial sanctions on Budapest from 2013 unless Hungary takes steps this year to change its budget policy. Cohesion funds are allocated by the Commission for funding projects such as roads and railways as well as education and training.
"Hungary should in the near future take action to meet its targets," EU Economic and Monetary Affairs Commissioner Olli Rehn told a news conference after the ministers' meeting. "There is ample time to take action and ensure that the fiscal targets are met," Rehn said.
Although long present in the EU toolbox of sanctions for non-euro zone countries breaking EU budget rules, the EU executive arm has never used such a sanction before.
Hungarian Finance Minister György Matolcsy said Budapest would avoid sanctions. "I am quite optimistic that Hungary will avoid the freezing of cohesion funds," Matolcsy told reporters after the meeting.
Last Updated on Wednesday, 25 January 2012 07:32