Budget deficit leads to EU Plans to freeze Hungarian funds

EU plans to freeze Hungary funds over budget deficit

Hungary’s currency, the forint, has plunged in value as the country struggles with debts

22 February 2012 Last updated at 12:30

The European Commission plans to suspend 495m euros (£417m; $655m) of Hungary’s EU funds next year because of the country’s huge budget deficit.

The penalty is “unprecedented” for an EU nation, said a statement from the commission – the EU’s executive arm.

The sum represents 29% of Hungary’s cohesion (development) fund allocation.

Last month the commission threatened Hungary with legal action over new laws said to restrict the independence of its central bank and courts.

Hungary has until 1 January next year to improve its budget finances – otherwise the EU funds will be frozen.

The commission proposal would also have to be backed by the 26 other EU member states to be applied. The EU cohesion funds are designed to improve infrastructure and the environment in the EU’s poorest regions.

The commission statement on Wednesday said “this unprecedented step follows the commission’s repeated warnings to Hungary, urging it to step up its efforts to end the country’s excessive government deficit, and its subsequent failure to take appropriate action”, Reuters news agency reported.

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 has been in excessive deficit since it joined the EU in 2004. And the deadline for correcting the excessive deficit has been pushed back twice, by three years in total,” said EU Economics Commissioner Olli Rehn.

“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,” he said.

“Hungary has until 1 January next year to bring its deficit back on track and avoid these consequences, and I trust it can and it will do so.”

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