Hungary may lose EU funds if deficit is not cut

Hungary, which joined the EU together with Malta, has been warned it will lose millions in EU funding if no corrective measures are taken by Budapest to reduce its deficit.

During a meeting of EU Finance Ministers in Brussels, member states endorsed the European Commission's recommendation noting that for the second time in a row Hungary failed to take suitable measures to effectively correct its budget deficit.

In 2005, Hungary's deficit is forecast to rise to 6.1 per cent of GDP, well above the 3.6 per cent ceiling initially set by Budapest.

Economic and Monetary Affairs Commissioner Joachim Almunia said after the council meeting he was very worried about Hungary's budget next year since no cuts in expenditure are planned despite the country's tax reform plan.

The Council pointed out that Hungary's planned tax cuts in 2006 contravene the Council's recommendation that meeting the budget deficit targets should take priority over tax cuts in the updated convergence programme, submitted by Budapest last year.

Mr Almunia said the Commission would be very strict when drafting new recommendations on Hungary and there is the possibility that Cohesion Fund money will be suspended. The UK's Chancellor of the Exchequer, Gordon Brown, who presided over the meeting, reiterated that the option of suspending EU funds exists and more member states seem prepared to step up pressure on Hungary.

Malta was represented at the Ecofin Council by its Permanent Representative, Richard Cachia Caruana.