EU warns Hungary to cut spending and deficit

Hungary's deficit will grow to 10.1% this year, more than three times the European Union limit of 3% of gross domestic product, according to the draft. In 2007, the government estimates the deficit at 6.8% of GDP, the 23-page draft shows. „The high general government deficit in Hungary expected for 2006 is a matter for serious concern,” the commission will say in the draft ruling obtained by Bloomberg News and which will be released in Strasbourg tomorrow. „The Hungarian government should put an end to the present excessive deficit situations as rapidly as possible and by 2009 at the latest.” Hungary is under pressure to meet budget rules even as the country's governing Socialist Party has faced demonstrations calling for Prime Minister Ferenc Gyurcsány's resignation after he admitted to lying about the economy to win April elections. The government wants to cut the deficit by boosting tax revenue and energy prices and reducing the size of state bureaucracy. In July, Hungary abandoned plans to adopt the euro by 2010 after admitting it will fail to trim the deficit enough to meet euro-entry rules. Of the 10 countries that joined the EU in May 2004, Hungary is the fourth to delay switching to Europe's common currency, after Lithuania, Latvia and Estonia.
„In particular, the envisaged expenditure-reducing measures should be entirely incorporated into the 2007 budget law,” according to the draft ruling. Hungary's deficit will continue to top budget rules for the next three years, the draft shows. Hungary's government must scale back spending in health care, pension and education and reduce debt „preferably before 2009,” according to the draft. This year, Hungarian debt was 68.5% of GDP, above the EU limit of 60%, the draft says. The level of total debt will deteriorate in the next two years and is estimated to be 71.3% of GDP in 2007 and 72.3% of GDP in 2008, according to government estimates, the draft said. (Bloomberg)