The EU executive threatened sanctions against crisis-hit Hungary today for failing to rein in its deficit and warned of further legal action unless it rows back on controversial political reforms.
In a move paving the way to possible financial penalties, the European Commission slammed the government for taking "no effective action" to trim its deficit below the European Union threshold of 3.0 percent of gross domestic product (GDP).
A statement urged EU finance ministers at talks on January 24 to trigger sanctions under new European legislation aimed at tightening budgetary discipline and reducing bloated deficits across the 27-nation bloc.
"I stand by my word: I am determined to fully use this new powerful set of tools," said Economy Commissioner Olli Rehn.
Hungary's finances have been downgraded to "junk" status by global agencies amid fears of a default, with its forint at record lows and its borrowing costs at record highs.
Its troubled economy took a turn for the worse after Prime Minister Viktor Orban's parliamentary majority went ahead with a package of hotly contested constitutional refoms late December.
The legislation sent tens of thousands of protestors into the streets of Budapest last week and halted a bid by Orban to win a reprieve with the help of an international rescue package.
A request by the troubled nation for a bailout by the European Union and IMF worth 15-20 billion euros ($20-25 billion) is in limbo after talks were suspended last month over EU concerns about its new central bank law.
The Commission on Wednesday also urged Hungary to reverse the changes made to its constitution or be liable to infringement proceedings for violating key rules of democracy.
"The commission has raised concerns on the compatibility of these laws with European Union laws," said spokeswoman Pia Ahrenkilde Hansen.
"We hope Hungary will take steps to correct what may be problematic."
She said the EU executive was continuing an analysis of the new Hungarian legislation and would decide next Tuesday whether or not to launch legal action.
Concerns regarded the independence of Hungary's central bank, its judiciary and its data protection authority.
"We hope Hungary will itself move to solve the problem so we don't have to go through these complicated steps," said Ahrenkilde Hansen.