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EU warns Hungary on budget risks, says more cuts may be needed

The European Union warned Hungary that slower-than-forecast economic growth after next year may hurt the nation's deficit-cutting plans and told the government to take further measures if needed.

„The budgetary outcomes could be worse than targeted,” the European Commission, the EU's Brussels-based executive body, said in a ruling today. „Lower-than-projected GDP growth in the outer years could lead to a higher deficit.” The government should „take adequate action to ensure the correction of the excessive deficit by 2009, if necessary through additional measures,” the commission said in today's report, which evaluates the deficit-cutting plan Hungary submitted in December. Prime Minister Ferenc Gyurcsány's government has raised taxes and cut subsidies to reduce the EU's widest deficit. Hungary aims to reduce the budget shortfall from about 10% of GDP last year to 3.2% by 2009. The plan counts on the economy growing 4.1% in 2009, after 2.2% growth this year and 2.6% in 2008. Though the deficit-reduction plan „appears to be broadly plausible,” reaching the target of 6.8% of GDP this year is hinged on the „rigorous implementation” of the 2007 budget, the report sad. It urged the government to implement stricter fiscal rules to avoid further overruns after missing deficit targets every year from 2002 to 2006. The EU also warned Hungary to avoid increasing spending in the run-up to the 2010 election. (Bloomberg)