The Hungarian government condemned as “unfounded and unfair” European Commission plans to suspend funding worth nearly €500m next year because of an excessive budget deficit.
Brussels warned that Hungary would lose up to €495m of European Union funds if it failed to cut public spending in the coming months – the first time the Commission has suggested such penalties for a country in breach of EU budgetary rules. Read more about the topic on FreeHungary.
Péter Szijjártó, the Hungarian prime minister’s spokesperson, said: “It is unfathomable why the European Commission has ignored the facts: Hungary’s budget deficit was, for the first time since we joined the European Union in 2004, below 3 per cent in 2011, and will remain so this year as well, which makes it the country with the eighth-lowest deficit in the European Union.” Szijjártó underlined that, in response to the European Commission’s forecast of a 3.25 per cent budget deficit in 2013, Budapest had taken further steps to shave another 0.4 percentage points of GDP off the deficit. Olli Rehn, European commissioner for economic and monetary affairs said he had yet to see “tangible” evidence of the latest cuts.
The European Commission contends that many of the measures taken by Budapest will have a one-off positive impact on its public finances, but that its budget deficit remains structurally too high. The rightwing populist government of Viktor Orbán has made controlling the deficit and reducing state debt a priority since coming to power in May 2010. But it has used “unorthodox” and one-off measures including “crisis” taxes on certain sectors, and renationalising contributions to a compulsory private pensions system, which have unsettled investors and failed to satisfy Brussels.
Hungary is under increasing pressure from across Europe to overturn two years of legislation by the ruling Fidesz party that numerous critics have termed an attack on democracy. The Commission has threatened legal action against Budapest unless the government changes laws on the central bank, courts and data protection, which the executive says have been altered to suit Fidesz and are not in line with EU law.
The European Commission announced as well that Hungary’s economy is set to contract by 0.1% this year, down from 0.5% growth in its previous prognosis, with the outlook clouded by an expected recession for the European Union as a whole. The Commission also sees inflation rising to 5.1% in 2012, thanks mostly to increases in indirect taxes, including VAT, which at 27%, is the highest rate in the EU, and higher-than-expected oil prices. The Hungarian government said the “European Commission is wrong again”. According to the headline of a statement released by the National Economy Ministry, the ministry does not agree with the growth projection of Brussels and sticks to its own estimate that instead of the 0.1% GDP contraction expected by the EC Hungary’s economy will grow by 0.5% this year.