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Strictly for educational purposes for the Occupy movement, Daily Postings
February 22, 2012 8:36 pm
Hungary hits at Brussels funds threat
By Stanley Pignal in Brussels and Kester Eddy in Budapest
Hungary condemned as “unfounded and unfair” European Commission plans to suspend funding worth nearly €500m next year because of an excessive budget deficit.
The sharp response came after Brussels warned on Wednesday 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.
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Olli Rehn, European commissioner for economic and monetary affairs, said Budapest had failed to curb its budget deficit enough to comply with EU rules designed to avert a repeat of the eurozone crisis.
In reply, Peter Szijjarto, 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.”
Brussels 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 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.
The Commission stressed that the penalties, which would have to be approved by a majority of European finance ministers to come into force, could still be averted if Hungary offered tangible evidence of spending cuts by the autumn. Failing that, about a third of the €1.7bn EU cohesion funds Hungary is expected to tap next year would be withheld from January, amounting to a fine of about 0.5 per cent of Hungarian gross domestic product.
“This decision today is to be regarded as an incentive to correct a deviation, not as a punishment. It is a fair and proportionate measure of a preventive nature,” Mr Rehn said.
EU rules governing public debt were strengthened in the wake of the eurozone crisis, giving the Commission and member states more powers to punish profligate governments. Annual budget deficits must not exceed 3 per cent, excluding one-off measures.
Mr Szijjarto 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. Mr Rehn said he had yet to see “tangible” evidence of the latest cuts.
Budapest feels it is being unfairly singled out by the Commission, perhaps because the budget fight comes on top of a wide-ranging spat between Budapest and Brussels over a new constitution adopted by Mr Orban’s government last year.
Brussels contends some of the measures brought in would fall foul of European norms on independence of public bodies such as the judiciary or the central bank. It has threatened Hungary with legal action in European courts.
The Hungarian authorities queried the legality of the Commission’s move, saying it contradicted the spirit of EU treaties since it imposes sanctions in response to a “pre-supposed future event”.