Bloomberg News

EU Ministers Set to Suspend Hungary Development Funds on Deficit Overrun

March 13, 2012

Hungary faces a freeze by European Union finance ministers on 495 million euros ($651 million) in EU development aid after the government failed to narrow its budget deficit in a “sustainable” manner.

The EU finance chiefs are set to vote at a meeting today in Brussels on a European Commission proposal to suspend the infrastructure aid starting in 2013. The move would affect 29 percent of Hungary’s share of so-called EU cohesion funds, according to the commission, the EU executive.

The commission last week raised its estimate for Hungary’s deficits for 2012 and 2013 and urged Prime Minister Viktor Orban’s government to implement further budget cuts. The deficit may widen to 3.6 percent of gross domestic product next year from 3 percent this year, the commission forecasts. EU rules specify that governments keep the annual deficit below 3 percent of GDP.

“The preparatory forums unambiguously supported the commission’s recommendation” to suspend the infrastructure subsidies, Tamas Szucs, the EU executive’s representative in Hungary, told reporters yesterday in Budapest. “Therefore it can be assumed that the ministers will also back it.”

Hungary has six months to “take steps to correct its excessive deficit in a sustainable and credible manner,” the commission said on March 6. Today’s meeting in Brussels will in “all certainty” approve the aid freeze, Peter Szijjarto, Orban’s spokesman, said on March 5, adding that Hungary would take the necessary measures to avoid losing the grants.

“As things stand, it seems that indeed these funds will be lifted and the onus will then fall on Hungary to change the commission’s mind before the end of year,” Societe Generale SA said in an e-mailed report today.

Bailout Talks

Orban’s government, which is seeking to revive bailout talks with the EU and the International Monetary Fund, remains embroiled in a separate legal dispute with the 27-nation bloc that has blocked the start of aid negotiations. The EU last week took a formal step toward seeking a court order to make Hungary redraft laws on the judiciary and the data-protection agency and asked for more information on planned changes to a new central- bank law.

The forint strengthened 0.2 percent to 293.13 per euro by 8:56 a.m. in Budapest, pushing this year’s gain to 7.4 percent, the third-best performance in the world after the Polish zloty and the Colombian peso.

Orban pledged on March 2 to ensure that the threatened suspension of Hungary’s development subsidies “won’t make a difference.”

“Hungary won’t lose one penny,” the premier said, adding that the EU’s proposal was based “on technical issues” that will be resolved.

To contact the reporter on this story: Edith Balazs in Budapest at ebalazs1@bloomberg.net

To contact the editor responsible for this story: James M. Gomez at jagomez@bloomberg.net


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