European Union Warns It May Suspend Fund Payments To Hungary

Hungarian lion with flag in Hungary

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The Council of the European Union announced this morning that it could suspend all cohesion fund payments to Hungary, as structural economic issues prevent it from meeting debt-to-GDP requirements of 3%.Fund payments for the entire region, which reimburse governments for programs that boost economic activity and social cohesion, were expected to total some €45.1 billion in 2012.

“Hungary cannot face sanctions under the excessive deficit procedure as it is not a member of the euro area,” the Council said in a statement. “But for beneficiaries of the EU’s cohesion fund, such as Hungary, failure to comply with the Council’s recommendations can lead to the suspension of cohesion fund commitments.”

The country has been under excessive deficit procedure since the middle of 2004, when the EU first said it would require Hungary hit its target by 2008. However, the economic downturn predicated an emergency assistance package of €20 billion and additional time to meet the 3% threshold. 

The Council set the end of 2011 as the date the country had to bring its deficit in line.

Including one-time items linked to the movement of pensions from the private sector to the state, the government in Budapest posted a 3.6% surplus for the year. However, excluding the charge, the deficit-to-GDP rate would have hit 6%.

The accord comes as Hungary remains locked in debate with the International Monetary Fund and European Central Bank over a new law that could decrease the the country’s central bank’s independence.