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Hungary faces loss of aid for breaking EU budget rules Hungary faces loss of aid for breaking EU budget rules
(40 minutes later)
The European commission has flexed its new fiscal surveillance muscles by proposing to suspend almost €0.5bn (£421m) in structural aid to Hungary for persistently breaching budget deficit rules. The European commission has flexed its new fiscal surveillance muscles by proposing to suspend almost €500m (£421m) in structural aid to Hungary for persistently breaching budget deficit rules.
This is the first time the European commission has proposed to suspend development funds – designed to support the EU's poorer regions – from one of its members over an excessive deficit.This is the first time the European commission has proposed to suspend development funds – designed to support the EU's poorer regions – from one of its members over an excessive deficit.
Olli Rehn, EU economic and monetary affairs commissioner, said: "Today's decision has to be regarded as a incentive to correct a deviation (from fiscal prudence) and not as a punishment." Olli Rehn, EU economic and monetary affairs commissioner, said: "Today's decision has to be regarded as an incentive to correct a deviation (from fiscal prudence) and not as a punishment."
Rehn is drawing up plans to dispatch scores of EU officials to Athens to impose fiscal rectitude on Greece whose own deficit this year threatens to be 6.7% rather than the planned 5.4% as recession deepens. He won new powers late last year to wield an effective veto on national budgets.Rehn is drawing up plans to dispatch scores of EU officials to Athens to impose fiscal rectitude on Greece whose own deficit this year threatens to be 6.7% rather than the planned 5.4% as recession deepens. He won new powers late last year to wield an effective veto on national budgets.
He told reporters that Hungary had been in "excessive deficit" – breaching the 3% of GDP ceiling – since it joined the EU in 2004 despite repeated warnings to get its fiscal house in order.He told reporters that Hungary had been in "excessive deficit" – breaching the 3% of GDP ceiling – since it joined the EU in 2004 despite repeated warnings to get its fiscal house in order.
Budapest says it managed to get below the 3% ceiling last year but Rehn dismissed this as diue to one-off factors – without which the deficit would be closer to 10%. "It is now for the Hungarian government to act before the suspension (of €495m from the EU cohesion fund) takes effect." Budapest says it managed to get below the 3% ceiling last year but Rehn dismissed this as due to one-off factors – without which the deficit would be closer to 10%. "It is now for the Hungarian government to act before the suspension (of €495m from the EU cohesion fund) takes effect."
The aid amounts to 0.5% of Hungarian GDP and will take effect from January 2013 if the Fidesz government does not comply. If Hungary were part of the eurozone, the "fine" would be lower at first but would be imposed immediately. The aid amounts to 0.5% of Hungarian GDP and will take effect from January 2013 if the government does not comply. If Hungary were part of the eurozone, the "fine" would be lower at first but would be imposed immediately.