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Hungary to lose 30% of its cohesion allocation?

Hungary appears to be a special case as EU leaders gathered on Thursday for a special summit on the Union's 2014-2020 budget. Under the budget proposal by Council President Herman Van Rompuy, the country may lose about 30% of its cohesion allocations - "a huge political problem" for Budapest.

Hungarian diplomats told EurActiv that the essence of the problem lies in the Commission's GDP growth forecasts, which have been put at "unreasonably" low levels for the country.

Such low levels, combined with a "tricky" capping of transfers under cohesion funding of 2.4% of GDP as proposed by Van Rompuy [see paragraph 44 of the 'negotiating box'], may cost the country more than €7 billion, one source estimated.

The 2.4% cap was introduced as a measure to limit the cohesion transfers to the largest recipients, Poland and Romania. Under the Commission proposal, the cap was set at 2.5%, but one net contributor even wanted 2%. To maintain cohesion transfers at comparable levels to the previous budget, Hungary would need a cap of 3.5%, which it admits would not be realistic.

The figures of the economic forecasts are contained in a Commission document titled "Macroeconomic assumptions and GNI forecasts", which is for internal use.

Poland is the only EU country which has survived the crisis relatively intact, economic figures show, and will keep a healthy cohesion envelope despite the cap. Romania also stands to avoid losing cohesion funding.

Hungary along with Estonia, Latvia and Lithuania saw their GDP growth for 2008-2010 slide into negative territory and are fighting to avoid losses under the cohesion cap. But after some nose-diving in recent years, Estonia, Latvia and Lithuania have caught up, which has been acknowledged by the Commission.

For the remaining Central and Eastern European countries, Slovenia and the Czech Republic have become "rich" and are leaving the category of countries with a GDP per head at 75% of the EU27 average. This leaves Hungary as an unusual case in terms of losses under the Van Rompuy proposal.

"We are the only country which is below 75%, will remain below 75%, and will suffer a substantial detrimental decrease. You will never find another member state with the same configuration of parameters," a Hungarian diplomat said.

"To solve the Hungarian problem, there are two ways. One is in the capping area, and the other is the safety nets. But if you look the safety net paragraph [46 and 47], there are safety nets for transition regions, for more developed regions, but not for least developed regions," the diplomat said.

The envoy's reference is to Article 174 of the Treaty on European Union, which says that "the Union shall aim at reducing disparities between the levels of development of the various regions and the backwardness of the least favoured regions".

Hungary considers that its problem can be solved not by increasing the overall budget, but by a "fair" re-distribution between budget categories, without increasing the overall ceiling of €973 billion.

A diplomat mentioned areas where the budget is due to grow, including 'Competiveness for Growth and jobs', 'Security and Citizenship', and 'Global Europe'.

"Our message is – the distribution between headings could be the solution," he said.

The Commission's 2014-2020 budget proposal was €1.025 trillion but has been cut – to €973 billion – under the Van Rompuy plan. The Van Rompuy figure is close to original German demand for cuts at €960 billion. The budget for 2007-2013 was €993 billion in comparable prices.

But the Hungarians say the real figure of cuts should take into account the financing of space-related projects, Galileo, ITER, GMES, which were planned outside the long-term budget but included in the Van Rompuy "negotiating box".

To this should be added the sums which will be allocated to Croatia, which is due to join the Union on 1 July 2013. Overall, Budapest calculates the reductions add up to nearly €100 billion.

The EU budget "should be manageable" even in an absence of decision, Hungary believes. But Budapest doesn't see itself as an obstacle to the agreement, with Britain being the most unpredictable player. In the absence of a correction budget for 2012 and of a budget for 2013, the budget for 2011 should apply from 2014 on, indexed with inflation.

Legally that would not pose a problem, with a qualified majority vote in the Council and co-decision with Parliament, but another question is what political problems such a situation would create, a Hungarian official said.

"Somebody formulated that the European Council will develop into an annual budget Council," he added.

Without suggesting a Hungarian veto, the diplomat hinted that under such a development his country could end up as one of the biggest beneficiaries of such scenario.

Officials close to Van Rompuy say there is no "plan B" and "the name of the game is to reach agreement".

"Everybody is unhappy, which means that we are not far from a compromise," a Council official said.

The past - EU's 2007-2013 budget

We may recall when in an early Saturday morning in December 2005. under the British Presidency, European Union leaders finally brokered a deal on the EU's 2007-2013 budget. The agreement earmarked €22.4 billion for Hungary for that period (which is €25,3 billion in year 2012 price level), €1 billion more than in Britain's last revised proposal, however, around €800 million less than in the original Luxemburg plan tabled in June 2005. Not surprisingly, Hungary's political parties saw the figures in a different light.

While Hungary's Socialst-led government and professional analysts have described the agreement as a success, highlighting that, after the Czech Republic, Hungary is the second new accession member to benefit most from the deal in terms of the extent of per capita cohesion allowances, opposition Fidesz has not failed to point out that funds will be some €800 million short of what Hungary could have received in the first Luxemburg proposal, which denies Hungarians around HUF 200 billion.

Analyts agreed that, for all its downsides, the agreement was, at the end of the day, a positive one for Hungary and that Hungary did its utmost to secure the best possible deal. As far as the extent of the funds was concerned, analysts have stressed that a more crucial question is whether Hungary will be able to make full use of the abundance of resouces the EU will make availble from 2007.

The agreement contained a number of pluses. It allowed Hungary to finance the cost of cohesion projects up to 85% with EU funds, while municipality funds will not be liable to VAT. These could have been saved the central budget an estimated combined €3-3.5 billion. In addition, the deal would have also retained an extra €140 million for the Central Hungarian region as proposed by Britain, which in principle it would not have been entitled to for its development level.

Another clear achievement of the talks was that Hungary was gonna be able to spend its cohesion funds on any housing redevelopment projects, rather than only on "social" programs. According to then Prime Minister Ferenc Gyurcsány, the only major negative of the agreement for Hungary was that compared to the original 2013, it could only use the prerogative to spend the funds for an extended 3 years after they have been allotted until 2010.

The deal, however, was viewed quite differently by at that time Hungary's main opposition party Fidesz. According to Viktor Orbán, Hungary could talk of political rather than economic success in connection with the talks. He noted that compared to the original €25.9 billion put forward by the European Commission and the €24.9 billion proposed in the European Parliament, Hungary will get only €22.4 billion (which is 25,3 billion in year 2012 price level), a definite setback.

 

Conclusion

We, Hungarians do hope that Prime Minister Orbán can prove that he can do it better, and he can reach a better deal for Hungary than what seems to be from the original budget proposal.

 

Source: Euractiv.com; portfolio.hu

Last Updated on Friday, 30 August 2013 09:11

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