January 24, 2012 / 1:13 PM / 8 years ago

EU ministers open way for freezing EU funds for Hungary

BRUSSELS (Reuters) - European Union finance ministers endorsed on Tuesday the European Commission’s view that Hungary had not done enough to bring its budget gap below the EU ceiling in a sustainable way, opening the way to freezing EU funds for Hungary from 2013.

Like Belgium, Cyprus, Malta and Poland, Hungary had until this year to bring its budget deficit sustainably below 3 percent under the EU’s excessive deficit procedure.

While the Hungarian deficit is set to come in below the 3 percent limit this year, the Commission has said it will only be so thanks to one-off measures and that the shortfall will grow again in 2013.

“The ministers adopted a decision on Hungary that it did not comply with the recommendation (to bring the deficit down in a sustainable way by 2012) under the excessive deficit procedure,” an EU diplomat said.

This opens the way for the European Commission to impose financial sanctions on Budapest from 2013 unless Hungary takes steps this year to change its budget policy.

“From the moment the ministers approve the Commission’s assessment that Hungary has not taken effective action, the Commission is free to decide to suspend up to 100 percent of cohesion funds for Hungary from 2013,” an EU official said.

“Hungary will have until the end of the year to act to change the Commission’s mind,” the official added.

Hungarian Prime Minister Viktor Orban is to meet Commission President Jose Manuel Barroso later on Tuesday to discuss reopening talks on a precautionary credit line from the EU and the International Monetary Fund as Hungary’s economic prospects deteriorate.

The Commission has threatened legal action against Budapest unless Hungary changes laws on the central bank, courts and data protection, which the Commission says have been altered to suit Orban’s ruling party and are not in line with EU law.

Orban’s efforts to centralize power and stack Hungarian state bodies with party loyalists have drawn criticism from Brussels and Washington, which fear they stifle democratic freedoms in the ex-communist country of 10 million.

Orban has lost a large part of his support at home, while the economy is heading for recession and investors’ loss of confidence has pushed borrowing costs to more than 9 percent.

Reporting By Jan Strupczewski; Editing by Rex Merrifield and Catherine Evans

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