Brussels, 19/07/2010 (Agence Europe) - On Saturday 17 July, the European Commission announced that it had suspended consultations with Hungary on the 2008 aid programme to the country, to enable the latter to overcome the financial crisis. As long as the assessment remains incomplete, Hungary will not be able to access assistance to the balance of payments loan - €1 billion out of a total amount of €6.5 billon. Up to now Hungary has received three instalments of the EU €6.5 billion balance of payments loan: two instalments of €2 billion each on 9 December 2008 and 26 March 2009 and a further €1.5 billion on 6 July 2009. EU aid is part of an international aid package of around €25.1 billion. The International Monetary Fund has also postponed consultations conclusions.
On 6-17 July, European Commission experts carried out a mission to analyse the economic programme implemented by Hungary. “Useful” discussions took place on the new government's intentions on economic policy for 2010 and beyond. The mission welcomed the government's commitment to the agreed budget deficit target of 3.8% of GDP for 2010. It stressed that continued fiscal adjustment in line with agreed fiscal targets is essential to ensure a reduction in the government debt ratio, improve financing conditions and support sustainable growth, and to support credibility in Hungary's public finances. It recognised that following the budgetary slippage in the first half of this year, a number of steps were taken to correct the situation, including sizeable revenue-enhancing and expenditure-saving measures. However, the corrective measures considered so far fall somewhat short of the required adjustment and are largely of a temporary nature. Hence, the government has to make increased efforts to bring the deficit below 3% of GDP, on a sustainable basis, in 2011. While noting that the planned financial sector levy would help in meeting short-term budgetary commitments, the Commission services considered that the levy in its current form could have a significantly negative impact on the country's investment climate and economic growth. The mission urged the authorities to review some features of the levy in this regard.
"Hungary has returned to a positive economic growth path and now has one of the lowest budget deficits in the EU. I welcome the authorities' commitment to the 2010 deficit target," said Olli Rehn, Commissioner for Economic and Monetary Affairs. "However, the correction of the excessive deficit by next year will require tough decisions, notably on spending. Care will also be needed to ensure a stable environment for both domestic and international investors." Hungary needs to maintain its security net EU loan. Furthermore it needs the IMF to guarantee the confidence of the markets from where it obtained the loan. The country remains vulnerable, given the high level of its public debt (80% of GDP and its dependency on foreign financing). Romania had to make tough decisions last month to ensure the release of IMF aid and to reassure the markets. (L.C./transl.fl)