Europe threatens Hungary with €495m funding cut
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The European Commission (EC) has taken the “unprecedented step” of threatening to withhold funding from Hungary if the country fails to address its excessive deficit.
Commissioners have warned Hungary that €495m (£413.5m) of cohesion fund commitments will be suspended unless progress is made in reducing the government deficit to below the 3% of GDP target.
Olli Rehn, vice-president for economic and monetary affairs at the EC, says: “Today’s proposal should be seen as a strong incentive for Hungary to conduct sound fiscal policies and put in place the right macroeconomic and fiscal conditions to ensure an efficient use of cohesion fund resources.
“It is now for the Hungarian government to act before the suspension takes effect”.
The European Union’s cohesion funding is offered to member states where per capita gross national product is less than 90% of the region’s average and is designed to help with their development projects.
The cut proposed by the EC represents 29% of Hungary’s total cohesion fund commitments for 2013. It is also equivalent to 0.5% of Hungarian GDP. (article continues below)
Last month, a review by the commission concluded Hungary has failed to make sufficient progress towards “a timely and sustainable correction of its excessive deficit”.
Hungary’s budget balance is “heavily influenced by one-off revenues” and does not reflect a sustainable deficit correction, the study said.
It added the country’s adherence to the 3% target in 2011 was only due to these one-off measures and masks “a severe deterioration in the underlying structural balance”.
“In 2013, the deficit is projected to reach 3.25% of GDP, even without taking into account possible negative effects of a worsening in the macroeconomic scenario and rising bond yields,” the review warned.
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