–Adds Estimate Of Impact On Hungary’s GDP Of Losing EU Development Aid

BRUSSELS (MNI) – The European Commission on Wednesday said it will
propose new measures to the Hungarian government to bring Hungary’s
budget deficit in line with the European Union’s 3% limit, warning that
inaction by Budapest could jeapordize its access to development funds
from the EU.

At the same time, the Commission said that no further actions would
be taken under the EU’s new fiscal discipline rules against Belgium,
Cyprus, Malta and Poland, because their governments were taking
effective actions.

Although Hungary’s deficit in 2011 was below the 3% limit, this was
“heavily influenced by one-off revenues that do not result in a
sustainable deficit correction,” the Commission said in a report issued
today. It said the country’s 2011 fiscal position “masks a severe
deterioration in the underlying structural balance” and added that, “in
fact the structural budgetary position deteriorated in 2010 and 2011 by
an estimated cumulative 2.75% of GDP.”

Hungary’s public deficit is expected to reach 3.25% of GDP in 2013,
the Commission said.

A spokesman for the Commission told journalists that the EU’s
executive body will announce on January 17 its decision on the legality
of new Hungarian laws that it fears would limit the independence of the
country’s central bank.

The controversial new laws are holding up talks between Budapest,
the EU and the International Monetary Fund on a financial assistance
package sought by the government in Budapest to help it cope with
soaring borrowing costs and a tumbling currency.

Under fiscal discipline rules adopted by the EU last December, the
European Commission gained enhanced powers to enforce compliance with
EU’s fiscal rules, including intensified surveillance, the right to
suggest specific policies to governments, and a more credible threat of
financial penalties.

While Eurozone countries ultimately face fines, countries that
don’t use the euro could see EU development aid, worth billions of
euros, withheld.

In the case of Hungary, withholding all EU development aid could
hurt GDP growth by as much as 1.7%, EU officials estimate.

In November the Commission identified the five countries it said
were at risk of missing deadlines set to correct their excessive

Olli Rehn, Commission Vice-President for Economic and Monetary
Affairs and the Euro said that today’s report shows the new rules, known
as the “six pack,” are delivering.

“It has given the European Commission teeth to act when countries
fail to bring their deficits under control and reduce their debt,” Rehn
said. “Fiscal discipline is crucial to reinforce confidence in our
public finances.”

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

–Brussels bureau: +324-9522-8374; pkoh@marketnews.com

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