The European Commission has tabled a proposal to cut almost a third of the aid it gives to Hungary, in response to the country’s constant breaching of EU budget deficit rules, the Guardian reports.The proposal would suspend almost €500 million (about $660 million) of Cohesion Fund commitments (used to support the EU’s poorer regions), effective January 1, 2013, if Budapest does not bring its budget deficit to below three per cent of its GDP. The country has failed to do so since it joined the EU in 2004 despite repeated warnings, according to EU Observer.
According to a press release from the European Commission, the amount that would be withheld represents 0.5 per cent of Hungary’s GDP and almost a third of the aid it would have received in 2013.
This is the first time the tactic of imposing sanctions on a member state has been used by the organisation. The Commission had initially debated ceasing all Cohesion Fund payments to Hungary, after it did not meet the 2011 deadline to get its fiscal house in order.
“Today’s proposal should be seen as a strong incentive for Hungary to conduct sound fiscal policies… to ensure an efficient use of Cohesion Fund resources,” Olli Rehn, the European Commission vice president for economic and monetary affairs and the euro, said.
Before the Commission’s announcement, Hungarian Prime Minister Viktor Orban introduced a few measures to cut public spending and bring the deficit below three per cent, but the European Commission was not impressed, saying the measures were one-off stop-gap arrangements, rather than long-term plans to bring down the deficit.
“Our government regards it as an unfounded and unfair proposal,” Hungarian government spokesman Peter Szijjarto told EU Observer in an emailed statement. However, Budapest is “ready for continued consultations with the institutions of the European Union.”
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