By Martin Banks - 22nd February 2012
Today's proposal should be seen as a strong incentive for Hungary
Olli Rehn
The European commission has proposed freezing €495m in cohesion funds for Hungary from 2013 because of its excessive budget deficits.
The figure represents 0.5 per cent of Hungary's GDP and 29 per cent of the country's cohesion fund allocations for next year.
The commission described the move as "unprecedented" and said it follows its repeated warnings to Hungary urging it to step up its efforts to end the country's excessive government deficit.
On 11 January, the commission said Budapest had not taken effective action to bring its deficit to below the target of three per cent of GDP by 2011 in a 'sustainable and credible manner'.
Apart from its economic problems, Hungary has fallen foul of the EU recently over the introduction of controversial new laws, particularly on press freedom and the judiciary.
The latest move is expected to further increase tensions between Budapest and Brussels.
Cohesion fund rules allow for the suspension of all, or part of, funding in the case of an excessive government deficit and this is the first time such a measure has been used.
Once effective action is deemed to be taken, the suspension would be lifted without delay, said a commission spokesman.
Cohesion funds are available for all member states who have a GDP which is below 90 per cent of the European average.
The commission source said, "The decision on the amount of cohesion fund commitment appropriations to be suspended should ensure that the suspension is both effective and proportionate."
Speaking in Brussels on Wednesday, Olli Rehn, the EU commissioner for economic and monetary affairs, said, "Today's proposal should be seen as a strong incentive for Hungary to conduct sound fiscal policies and put in place the right macroeconomic 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".
Further comment came from Johannes Hahn, the EU regional policy commissioner, who said, "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.''
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