The European Union has decided to suspend 495m euros ($655m; £417m) of funds due next year to Hungary, because of the country's budget deficit.

This is the first case of the EU taking action over the budget deficit of any of its members.

But the EU will allow three months for Hungary to pass more budget cuts.

The decision came as the EU also allowed Spain to run a higher deficit, leading Austria to accuse the EU of applying "double standards".

Spain will have to cut its deficit to 5.3% of GDP this year - higher than the 4.4% that Spain was originally told to target.

But the EU's monetary affairs commissioner Olli Rehn said that "different deadlines" meant direct comparisons of the Spanish and Hungarian cases were not valid, as Hungary had already been given an extension.

The EU's Excessive Deficit Procedure rules say EU member states should keep their budget deficits below 3% of national output (GDP) and government debts below, or sufficiently declining towards, 60% of GDP.

Hungary is forecast to run a deficit of 3% this year and 3.6% next year. Its total debt is 82% of its output.

Danish economy minister Margrethe Vestager said that the EU would reassess its decision on Hungary in June.

Hungary's neighbour, Austria, had wanted to postpone the decision to suspend funds because of worries that Hungary would not be able to get a IMF loan.

Vienna would have "preferred to give Hungary more time to adjust," said Austrian Finance Minister Maria Fekter.

Hungary had been in talks with the IMF and was given a 20bn-euro standby loan by the IMF in 2008 to prevent it having to default on its debts.

 Hungarian analysts were in no doubt that European finance ministers would approve the partial suspension of next year's cohesion funds for Hungary. What they do not agree upon is who is at fault. In the pro government Hungarian daily Magyar Nemzet, Anna Szabó thinks the sanctions will be upheld until Hungary "dances to the European Commission's tune". She finds it odd that the commission had to "hastily improvise a new forecast for 2013 GDP growth in Hungary," in order to prove itself right. Szabó concludes that the European Commission may in fact be concerned about Hungary's public deficit, which is well below the Union average, but it's main concern is how to find newer and newer ways to justify the sanctions it imposes on Hungary,

In left-wing Hungarian daily Népszabadság, Brussels correspondent Eszter Zalán remarks that Hungarian diplomats did not even try to build up a coalition among the finance ministers to vote down the draft tabled by the European Commission. Zalán thinks that was because in the present tough financial environment, the Council cannot afford to appear lenient. The only question is why they singled out Hungary. Her answer is that the Hungarian government has been too provocative in its attitude towards Brussels and has thereby practically "offered itself as an example, for the Commission to show its teeth," and thereby set a precedent.

Source: http://www.bbc.co.uk/news/business-17357626, Budapost.eu

Last Updated on Wednesday, 14 March 2012 09:36