EU plan for sanctions against Hungary

EU FINANCE ministers have backed a European Commission plan to impose financial sanctions against Hungary over its budget deficit, the first such move against any member of the union.

The development, if followed through by the ministers, would see Budapest deprived of some €495 million in EU cohesion funding.

It came at a meeting in Brussels at which the ministers failed to settle their differences over a proposed tax on financial transactions, which is being heavily promoted by Germany and resisted by Britain.

The ministers left Hungary some breathing space by pledging to revisit the question in June “with a view to lifting the suspension” if “effective action” is taken to assert control over the deficit.

“This provides a strong incentive for Hungary to conduct sound fiscal policy,” said EU economics commissioner Olli Rehn.

The procedure against Hungary represents a key test of a new system to toughen the enforcement of EU budget rules, one which will be underpinned by Europe’s new fiscal treaty.

The development also escalates pressure against the centre-right administration led by Hungarian prime minister Viktor Orban.

He is out of favour in Europe, having been accused of blunting the independence of the country’s central bank, judges and data protection body in a new constitution.

While the Orban administration argues it has taken sufficient measures to restore order in its public finances, Mr Rehn has complained that such actions comprise only once-off measures with no substantial inroads into the country’s structural deficit.

However, the ministers’ endorsement of the sanction Mr Rehn proposed was made only by qualified majority vote after Austria led a group of dissenters.

Diplomatic sources said Austrian minister Maria Fekter was backed by her Polish, Swedish, British and Czech counterparts during the course of a long debate.

Minister for Finance Michael Noonan said the State supported the commission’s stance.

“We never say what we do internally. The Hungary situation is being resolved. The Irish position is: we agree with the commission’s analysis,” Mr Noonan told reporters.

Some countries are concerned that the tension with Hungary could undermine its efforts to agree an emergency funding deal with the EU and International Monetary Fund.

Although Hungary is not a member of the euro zone, the authorities are keen to see stability established in its public finances.

Mr Rehn told reporters in Brussels yesterday that Hungary would have faced tougher “quasiautomatic” sanctions if it was in the single currency.