EU may suspend funds to Hungary over persisting deficit

The European Commission has proposed to suspend €495 million of Cohesion Fund to Hungary for 2013 over its failure to address excessive deficit

"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," the EU said.

On 11 January this year, the European Commission concluded that Hungary had not taken effective action to bring its deficit to below the target of 3% of GDP by 2011 in a sustainable and credible manner. The European Commission therefore proposed to step up the Procedure. This recommendation was endorsed by the Council of Ministers on 24 January, paving the way for a suspension of part of the Cohesion Fund commitments for Hungary.

Commenting on the proposed suspension, Olli Rehn, the European Commission Vice-President for Economic and Monetary Affairs and the Euro said: "Today's proposal should be seen as a strong incentive for Hungary to conduct sound fiscal policies and put in place the right macro-economic 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".

Johannes Hahn, Commissioner for Regional Policy, added: "It is now up to the Hungarian authorities to take the necessary measures without delay, in order to be able to reap the full benefit of the Cohesion Fund. Today's proposal is proportionate and leaves the possibility to continue investments via the Fund, whilst giving Hungary the chance and time to redress the situation.''

Once effective action is deemed to be taken, the suspension would be lifted without delay.