Hungary told to cut its deficit or lose a half billion euros in aid from EU

BRUSSELS/BUDAPEST – EU finance ministers suspended on Tuesday Hungary’s access to half a billion euros in aid from next year for failing to keep its budget in check, but told Budapest it could escape the sanctions if it takes remedial fiscal action by June.

Following a report from the OECD group of developed nations predicting the country would slide into recession, the finance chiefs agreed to rule in June whether Hungary can win back the 495 million euros if it makes progress on its deficit.

The move puts pressure on Prime Minister Viktor Orban’s government as it struggles to win funding from the EU and International Monetary Fund to underpin the econ- omy and prop up the weak forint currency.

“This provides a strong incentive for Hungary to conduct sound and sustainable fiscal policy,” EU Economic and Monetary Affairs Commissioner Olli Rehn told reporters in Brussels.

“Action by the Hungarian authorities would lead to the lifting of the suspension before it becomes effective in case of course Hungary takes effective action,” he said.

Diplomats said Germany and Austria, a country whose banks play a large part in Hungary’s financial system, had proposed a compromise for a conditional delay, while other backers worried any freeze could complicate the start of EU/IMF talks.

In a compromise, EU finance ministers will revisit the issue on June 22.

It will lift the suspension if Hungary assures them it has done enough to address its excessive budget shortfall.

Under the European Commission’s original proposal, Hungary needed to show by September that it could bring its fiscal deficit to below the EU threshold of three per cent of gross domestic product in 2013 in a sustainable way to be let off the hook.