The European Union executive called yesterday on the bloc’s finance ministers to impose sanctions on crisis-hit Hungary for failing to act to reduce its deficit in line with agreed targets.
Poland, Cyprus, Malta and Belgium have taken effective action, the Commission said. Belgium has made sweeping cuts
The European Commission said that the government in Hungary, which is outside the eurozone, has taken “no effective action” to get its deficit back within the EU’s three per cent of gross domestic product (GDP) threshold.
The Commission “proposes to move to the next stage of the Excessive Deficit Procedure,” it said, calling on ministers to slap sanctions that nonetheless stop short of hard cash penalties for non-euro states, when they vote at a meeting on January 24.
The pressure could still result in financial penalties, however, with European Economy Commissioner Olli Rehn reiterating the Commission’s position that states could see so-called EU “cohesion” payments worth many billions suspended “from January 2013.”
“Hungary has in fact been in excessive deficit ever since its accession in 2004,” Rehn said, adding that the deadline for Budapest to get back within the limit had already been pushed back twice.
Rehn’s office said in a release that although Hungary “formally respected” the threshold last year, “this is only thanks to one-off measures worth some 10 per cent of GPD.”
Without a key transfer of private pension funds to the public books, Rehn said the deficit “would have hit six per cent of GDP – and this cannot be considered a sustainable deficit.”
Despite only targeting Hungary out of five countries facing a deadline this year, Rehn maintained he was ready to take the procedure to its logical conclusion, using new laws that entered into force at the turn of the year.
“I stand by my word: I am determined to fully use this new powerful set of tools,” which would see eurozone states docked monies that would in the most extreme cases end up converted into fines.
In Rehn’s analysis, however, the other four countries – three of them in the eurozone, including Malta – escaped action as they were deemed to have steps to remedy the problem.
Poland, Cyprus, Malta and Belgium “have taken effective action,” the Commission said in a statement.
Belgium has scrambled over recent weeks to make sweeping cuts worth some €11.3 billion from its 2012 Budget and freeze another billion or more on the Commission’s advice so as to get down to the three per cent limit.
The eurozone’s biggest economies were not in the group given until 2012 to get their public finances back within EU strictures but will face deadline squeezes of their own over the next years.
For instance, Spain’s deadline is 2013 but despite its 2011 deficit likely hitting eight per cent and not the planned six per cent, Rehn said Madrid had already agreed key measures to correct its slippage and was expected to take further measures to do so over 2012 to get back on track.
The EU is currently discussing how watertight to make a new fiscal pact covering 26 of the current 27 member states – Britain is the sole country not signing up to the accord.
The latest legal draft seen by AFP shows that planned powers for the European Court of Justice to act of its own volition when budgets stray off course may be curtailed.