EC proposes suspending euro
495m funds to Hungary
Brussels,
22 February 2012 - The European Commission has today proposed to suspend EUR
495 184 000 of Cohesion Fund commitments taking effect on 1 January 2013,
representing 0.5 % of GDP and 29% of the country's cohesion fund allocations
for 2013.
This unprecedented step follows the Commission's repeated warnings to
Hungary
urging it to step up its efforts to end the country's excessive government
deficit, and its subsequent failure to take appropriate action. On 11 January
this year, the European Commission concluded, as part of the Excessive Deficit
Procedure (EDP), that Hungary had not taken effective action to bring its
deficit to below the target of 3% of GDP by 2011 in a sustainable and credible
manner (see
IP/12/12and MEMO/12/7).
The European Commission therefore proposed to step up the Procedure. This
recommendation was endorsed by the Council of Ministers on 24 January, paving
the way for a suspension of part of the Cohesion Fund commitments for Hungary.
Commenting
on the proposed suspension, Olli Rehn, the European Commission Vice-President
for Economic and Monetary Affairs and the Euro said: "Today's proposal should be seen as a
strong incentive for Hungary
to conduct sound fiscal policies and put in place the right macro-economic and
fiscal conditions to ensure an efficient use of Cohesion Fund resources. It is
now for the Hungarian government to act before the suspension takes
effect".
Johannes
Hahn, Commissioner for Regional Policy, added: "It is now
up to the Hungarian authorities to take the necessary measures without delay,
in order to be able to reap the full benefit of the Cohesion Fund. Today's
proposal is proportionate and leaves the possibility to continue investments
via the Fund, whilst giving Hungary
the chance and time to redress the situation.''
The
current Cohesion
Fund Regulation explicitly provides for the suspension of the
totality, or part of, the Fund in the case of an excessive government
deficit and an absence of effective action to correct it. This is the first
time such a measure is being applied. The proposed suspension concerns the most
recent breach only, and not past fiscal behaviour. It is now up to the Member
States to endorse the Commission's proposal concerning Hungary. Once effective action is deemed to be taken, the suspension would be
lifted without delay.
Background
Hungary has been under the Excessive
Deficit Procedure ever since its accession to the EU in 2004. After deciding in
January and November 2005 that Hungary
had not taken effective action, the deadline for correcting this situation was
postponed in October 2006, from 2008 to 2009. In July 2009, against the
background of a severe economic downturn which triggered fiscal adjustment
measures and the provision of EU/IMF balance of payments support, the Council
concluded that Hungary had taken effective action and issued revised
recommendations under Article 104(7) TEC, setting 2011 as the new deadline to
correct the excessive deficit in a sustainable manner.
Although Hungary is expected to notify a sizeable
budgetary surplus of 3.5% of GDP for 2011, the country has achieved this
surplus only thanks to one-off measures worth some 10% of GDP altogether (Hungary
transferred private pension funds of 9¾ of GDP to the budget. In addition,
extraordinary levies were introduced). Without these one-off measures the
deficit in 2011 would have reached 6 % of GDP. Moreover, and in stark contrast
to the recommended cumulative fiscal improvement of 0.5% of GDP, the structural
budgetary position deteriorated by a cumulative 2½ % of GDP in 2010 and 2011.
In 2012,
the budgetary outcome will swing into deficit again. In 2013, the deficit is
forecast to reach 3¼% of GDP and thus again breach the reference value of the
Treaty.
This is why the Council took a decision under Art. 126 (8)
of TFEU on 24 January 2012 that Hungary
has not taken effective action. Under the Cohesion Fund Regulation,
failure to comply with the recommendations under the excessive deficit
procedure can lead to the suspension of Cohesion Fund commitments, as is the
case with Hungary
today.
The decision on the amount of Cohesion Fund commitment appropriations to
be suspended should ensure that the suspension is both effective and
proportionate, whilst taking into account the current overall economic
situation in the European Union and the relative importance of the Cohesion
Fund for the economy of the Member
State concerned.
Accordingly, it is appropriate, in case of a first application of Article 4 (1)
of Regulation (EC) No 1084/2006 to a given Member State, to set the amount at
50 % of the allocation of cohesion funds for 2013, without exceeding a maximum
level of 0.5 % of the nominal GDP of the Member State concerned as forecast by
the Commission services. This formula will apply for the rest of the 2007-2013
programming period.
The suspension is 5.7% of the total 2007-2013 allocation and 29% of 2013
commitments. The allocation from the Cohesion Fund for Hungary for
this financial programming period of 2007 until 2013 amounts to 8,6 billion
Euro in EU-funding, representing 1.26% of GDP. The foreseen allocation for 2013
is 1,7 billion Euro, representing 1.73% of GDP. The Cohesion Fund is available for
all Member States who have a GDP which is below 90% of the European average and
aims specifically at larger investments in infrastructure and environment in
these Member States.
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