The decision under the EU’s excess deficit procedure has to be approved by the EU finance ministers group Ecofin.

Pointing out that Hungary has until next January to take action and avoid sanctions, Rehn declared that the EU's proposal is to be seen as an incentive for the government to follow a strict fiscal policy, rather than as a punishment.

The Commission has never before proposed to levy sanctions against a member state over an excess budget deficit procedure. Hungary has been under the procedure since it joined the EU in 2004.

In that period, Hungary has never recorded a budget deficit of less than 3% of GDP without one-off measures.

Hahn stressed that payments for ongoing projects would not be cut off, but added that the size of the suspension is high enough for Hungarian authorities to take action.

The €495 million figure equates to 29% of Hungary's income from EU cohesion funds, or 0.5% of GDP. Such funds are primarily used for transport and environmental projects.

Rehn noted that the government kept the budget deficit below the 3% level last year by resorting to one-off measures equal to 10% of GDP.

If the government proves that it can reduce the budget deficit in a sustainable manner with structural measures, then the European Commission will not hesitate to unfreeze access to the funds, Rehn said.

The Commission made its proposal yesterday based on projections that the deficit will reach 3.25% of GDP in 2013.

EU finance ministers are expected to decide on the proposal at their March 13 meeting. If they endorse the EC decision, then the sanctions against Hungary would enter into force from January 1.

Rehn, responding to a reporter's question, said EC President Jose Barroso had received a letter from Prime Minister Viktor Orban one or two days ago and one from Economy Minister Gyorgy Matolcsy in early February.

The letters did not include any newly adopted fiscal measures which could change immediately the overall outlook on public finances, he said.

The Commission always takes into account measures that are publicly announced, well-founded and detailed, Rehn stressed, adding that Orban's letter did not meet these criteria. Further action will be needed, he added."

Source: Hungary Around the Clock

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