EU ends sanctions against Hungary, unblocks frozen funds

LUXEMBOURG Fri Jun 22, 2012 8:14am EDT

LUXEMBOURG (Reuters) - The European Union lifted financial sanctions against Hungary on Friday after Budapest convinced its European partners it was committed to keeping spending within EU limits.

EU finance ministers in March blocked 495 million euros ($625 million) in EU funding from 2013 after losing patience with Hungary over its failure to meet its budget deficit targets.

But the finance chiefs reversed the March decision at a meeting in Luxembourg. Reuters reported earlier this week that ministers would take the decision, convinced that Prime Minister Viktor Orban had shifted policies to bring down a stubborn deficit.

"The money will be in our pockets and hopefully in the economy very soon," Hungarian Economy Minister Gyorgy Matolcsy told Reuters during the meeting in Luxembourg.

European Commission President Jose Manuel Barroso already made a recommendation to finance ministers that they should lift the sanctions after the EU executive improved its forecast for Hungary's fiscal deficit to 2.7 percent of economic output in 2013. That is within the EU's 3 percent ceiling.

Budapest angered the Commission and other EU countries by failing to rein in its deficit in a sustainable manner since it joined the EU in 2004. The Commission's new powers to police budget deficits across the bloc served to put more pressure on Orban's government.

The sanctions, used for the first time against an EU country on a budget issue, marked a low point between Brussels and Orban, whose centralizing style prompted Barroso to raise concerns about authoritarianism in Hungary.

But relations have since warmed because Budapest has also moved on bringing new central bank laws in line with EU norms.

(Reporting by Robin Emmott; editing by Rex Merrifield)