EU to freeze $655 million in Hungary funds

BRUSSELS (AFP) ― Brussels is proposing to freeze 495 million euros ($655 million) in EU funds destined for Hungary in 2013, the European Commission said Wednesday, the first time it has ever taken such a measure.

Hungary, whose Prime Minister Vikor Orban is already in dispute with Brussels over a raft of new laws criticized as undemocratic, lashed out over the “unfathomable” move, saying it contravened the spirit of EU treaties.

“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,” the Commission said in a statement.

The freeze in so-called cohesion funding, aimed at reducing economic disparities across the 27-nation, would take effect Jan. 1, 2013 and would concern 29 percent of Hungary’s allocations for the year.

The European Union executive last month concluded that Hungary had not taken effective action to reduce its deficit below the target of 3.0 of gross domestic product by 2011 “in a sustainable and credible manner.”

“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,” Economic Affairs Commissioner Olli Rehn said.

“It is now for the Hungarian government to act before the suspension takes effect,” he said.

Rehn told a news conference that Hungary has been in excessive deficit ever since its EU accession in 2004, adding that the deadline for Budapest to get back within the limit had already been pushed back by three years.

Rehn’s office said in January that Hungary formally respected the threshold last year, but he stressed on Wednesday that this was only possible due to one-off measures worth “around 10 percent of GDP.”

Without a key transfer of private pension funds to the public books, the commission maintains the deficit would have hit 6.0 percent of gross domestic product.

The commissioner said the suspension threat was both fair and proportionate.

EU regional policy commissioner Johannes Hahn said the “overarching aim” of the decision was “to prevent further difficulties,” and underlined: “If Hungary takes corrective action, the funds will be available again to spend.”

Projects including flood protection around the Danube could suffer if Budapest does not respond to the commission demands.

He added: “The ball is now in the Hungarian camp.”