Brussels, 22/02/2012 (Agence Europe) - The noose is tightening around Hungary. The country has now been threatened with having to say goodbye, next year, to €495 million provided by the structural funds, if the country's public deficit remains above the limit of 3% of GDP in 2012. This was the threat brandished by the European Commission on Wednesday 22 February, on the basis of unprecedented yet proportionate methodology. Although it has been presented as a carrot rather than a stick, the measure has set Hungary's teeth on edge. The country feels unjustly targeted and is challenging the Commission's calculations. Both sides remain confident that by the end of the year, the Commission's expectations will be met, and the threat of the suspension of cohesion funds will be removed.
Excessive deficit procedure. 2012 has got off to a poor start for Hungary. In the framework of the excessive debt procedure for 2011, the Commission lost its patience following repeated infringements of the rules on public deficits. Since last autumn's revision of the revised stability pact, a country which is not a member of the eurozone finding itself in a public deficit situation risks seeing some of its cohesion fund payments suspended. Hungary now finds itself in this scenario. As these rules are being used for the first time, the manoeuvre is a perilous one, for the Commission as much as for Hungary.
An encouragement, not a punishment. Announcing the Commission's decision, the two European commissioners responsible, Johannes Hahn for regional policy and Olli Rehn for economic affairs, both sang from the same hymn sheet: the possible suspension, next January, of €495,184,000 earmarked under the cohesion fund is not to be seen as a punishment, but rather as an incentive to Hungary to make greater efforts to take its deficit in hand. “This decision must also be seen as an encouragement to Hungary, it should not be seen as a sanction, but rather as a preventative measure. In fact, Hungary has practically a year, until 1 January 2013, to get its deficit down to an acceptable level”, said Rehn, who is confident that, working together with the Commission, the country can meet the challenge.
Proportionate methodology. Agreeing with his colleague's comments, European Commissioner Johannes Hahn laid particular emphasis on the proportionate and credible approach taken by the European Commission to “stimulate the Hungarian authorities to put their affairs in order”. He described the procedure as well balanced, as the Commission has opted for a partial suspension of the funds, rather than a total suspension. The €495 million at stake in fact represent around one third of the cohesion funds pledged to the country for 2013. To calculate this sum, the Commission had to establish a new methodology, which will also be applied to other countries in the same situation in the future. Hahn stressed that the methodology used is transparent: the suspension may target up to 50% of commitments for 2013, as long as this does not exceed 0.5% of the GDP of the country in question. It is this last criterion which was decisive for Hungary, and brought the possible suspension down to 29% of the cohesion fund for next year. “This will allow Hungary to take decisive measures, without blocking off a major artery to feed into growth”, said the commissioner. Nor will this compromise ongoing programmes for which payments have already been made. At this stage, there are no sufficiently mature programmes for which the suspension will affect funding.
Hungary resigned, but sceptical. The Hungarian authorities state that they do not understand the decision of the Commission. According to their calculations, Hungary did not exceed the threshold of 3% of public deficit in 2011, for the first time since its accession. It has been argued that this is due solely to exceptional, rather than permanent, measures. In order better to defend the Hungarian position, letters were sent on the eve of the announcement by the Hungarian prime minister, Viktor Orban, to the president of the Commission, Jose Manuel Barroso, and by the Hungarian finance minister to Commissioner Rehn. Hungary is struggling to hide its doubts as to the relevance of the procedure being followed. The proposal is “legally controversial” and “contradicts the spirit of the treaties”, as it “punishes a presupposed future event”, the Hungarian government states in a press release. The Hungarian diplomats are even hinting at a demonstration of force on the part of the European institution as a warning to the other member states. Shortly before the Commission's proposals were announced, the Hungarian press reported the words of Varga Mihaly, the minister of state leading the prime minister's office: “It seems the Commission thinks it is time to make an example and freeze the cohesion funds (…). The EU wants to show to other countries what they can expect if they don't go below 3%”. (MD/transl.fl)