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Brussels, 22 February 2012

Statement by Vice President Rehn on Hungary

The Commission took a decision today to propose to partially suspend commitments of the EU Cohesion Fund for Hungary from January next year onwards, because of non-compliance with the latest Council recommendation in January to correct its excessive deficit. We will explain this decision with my colleague, Commissioner Hahn, with whom I have worked closely together in order to prepare this decision So, from the economic side and the side of fiscal surveillance, the following points are important.,

First, Hungary has been in excessive deficit since it joined the EU in 2004. And the deadline for correcting the excessive deficit has been pushed back twice, by three years in total.

Following the Commission's proposal, the ECOFIN Council concluded on 24 January 2012 that Hungary had still not taken effective action in response to the Council Recommendation of 7 July 2009 to correct its excessive deficit in a sustainable and credible manner. So the benchmark is the Council Recommendation of July 2009.

Hungary had the deadline of last year, 2011, to correct its excessive deficit. The budgetary target last year was nominally reached but only due to one-off revenues worth around 10% of GDP. Hungary will breach the 3% threshold again next year [3¼%]. The structural budgetary position deteriorated by a cumulative 2¾% of GDP in 2010 and 2011, which is in sharp contrast to the recommended fiscal improvement of 0.5%.

Therefore, the Commission proposes to suspend 495 million euro of EU Cohesion Fund commitments for Hungary for 2013, because of its failure to address its excessive government deficit.

Let me point out that since the "six-pack" legislation for reinforced economic governance entered into force in December, we have a wider and fairer scope of enforcement tools at our disposal for countries that deviate from prudent fiscal policies. In other words, we have such tools of enforcement and incentives not only for the beneficiaries of the Cohesion Fund – and in fact the consequences would be immediate in the case of euro-area member states.

I want to underline also that this decision today is to be regarded as an incentive to correct a deviation, not as a punishment. It is a fair and proportionate measure of a preventive nature.

Indeed, Hungary has until 1st January next year to bring its deficit back on track and avoid these consequences, and I trust it can and it will do so. The Commission stands ready to engage with the Hungarian authorities in a true spirit of partnership to achieve this objective.

Restoring confidence in the Hungarian economy and supporting the prosperity of Hungarian citizens is the goal of our decision today.

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