Hungary warned it may lose EU funds over reform

Thu, Jan 12, 2012, 00:00

THE EUROPEAN Commission has piled pressure on Hungary, threatening to withdraw some EU funds if it does not fix its wayward public finances and warning of legal action if contentious elements of a new constitution are not unwound.

In an escalation of tension with conservative prime minister Viktor Orban, the commission called for new deficit-cutting measures and said his government must swiftly lay to rest concerns about the constitution. The development came as Hungarian officials prepared for talks in Washington on a delayed EU/International Monetary Fund rescue plan, an initiative threatened by new laws that curb the independence of the country’s central bank.

Although Mr Orban has signalled willingness to review those laws, economics commissioner Olli Rehn made a point of singling out his country for failing to take adequate measures to keep its deficit within the EU limits.

While noting that Hungary kept the deficit within the 3 per cent of GDP limit last year, the commission said this was done via one-off measures. “Hungary has not taken effective action,” Mr Rehn told reporters.

“As Hungary is not a member of the euro, it won’t face the prospect of a financial sanction. It could nevertheless face a suspension of commitments from the cohesion funds.

“Hungary has been in excessive deficit ever since its accession in 2004, and the deadline for correcting the excessive deficit has been pushed back twice, by three years in total.” The concentration on Hungary came as Mr Rehn saluted Belgium, Cyprus, Malta and Poland for taking effective action to repair their finances.

The commissioner deployed new powers last week to seek a new round of austerity measures from the Belgian government within days.

As Europe grapples with the debt crisis, his intervention was seen a crucial test for new measures designed to enforce budget discipline throughout the EU.

Belgium imposed an emergency €1.3 billion spending freeze, leading Mr Rehn to say the new system was already delivering results.

“It has given the European Commission teeth to act when countries fail to bring their deficits under control and reduce their debt,” he said.

“I stand by my word: I am determined to fully use this new powerful set of tools from day one.”

The commission’s pressure on Hungary comes as Denmark celebrates the opening of its six-month presidency of the EU.

The administration led by prime minister Helle Thorning-Schmidt has signalled its support for the commission’s effort to bring Budapest in line.

While Mr Orban has been accused of a power grab, he insists the new constitution is a legitimate means of removing what remains of Hungary’s communist past from the state system.

In a statement, the EU’s executive branch said it would decide on Tuesday whether to initiate legal action against over the constitution. “As guardian of the treaties, the commission remains preoccupied that a number of the new provisions may violate EU law,” it said.