European Commission gives Hungary bad marks in excessive deficit procedure

The European Commission on Wednesday said Hungary had failed to make sufficient progress to narrow its fiscal deficit as part of an European Union procedure.

"The European Commission concluded that Hungary has not made sufficient progress towards a timely and sustainable correction of its excessive deficit," the Commission said.

The Commission said it would recommend that the Council of Ministers decide that "no effective action" has been taken to bring the deficit under the 3% of GDP threshold in a sustainable manner, then propose to the Council new recommendations addressed to Hungary.

"The budget balance in Hungary...is heavily influenced by one-off revenues that do not result in a sustainable deficit correction," the Commission said.

The Commission acknowledged that Hungary "formally respected" the 3% of GDP threshold in 2011, but noted that it was only because of one-off measures worth some 10% of GDP.

"This budgetary outcome masks...a severe deterioration in the underlying structural balance. In fact, the structural budgetary position deteriorated in 2010 and 2011 by an estimated cumulative 2.75% of GDP in stark contrast to the recommended cumulative fiscal improvement of 0.5% of GDP," the Commission said.

The Commission said the general government deficit would remain under 3% of GDP in 2012, too, only because of one-off revenue. The deficit is projected to reach 3.25% of GDP in 2013, even without taking into account possible negative effects of a worsening in the macroeconomic scenario and rising bond yields, it added.

Vice President of the European Commission Olli Rehn said at a press conference in Brussels on Wednesday said that Hungary’s deficit would have reached 6% of GDP in 2011 without the one-off measures, including the transfer of private pension fund assets equivalent to 9.75% of GDP. The one-off measures planned in 2012 add up to close to 1% of GDP, without which the deficit would exceed the threshold, he added.

Mr Rehn said Hungary could face a suspension of commitments from the Cohesion Fund from next year.

Mr Rehn noted that Hungary’s excessive deficit was the product of "various governments of different political colour".