The European Commission concluded Wednesday that Hungary has not made sufficient progress towards a timely and sustainable correction of its excessive deficit.
The European Commission proposes to move to the next stage of the Excessive Deficit Procedure (EDP) and recommends that the Council of Ministers decides that no effective action has been taken to bring the deficit below 3% of GDP in a sustainable manner.
Subject to this Council decision (under Article 126(8) of the EU Treaty), the Commission will then propose to the Council new recommendations addressed to Hungary (under Article 126(7) of the Treaty) with a view to bringing to an end its excessive government deficit.
Belgium, Cyprus, Malta and Poland – the other countries that were at risk of not meeting their deadlines of 2011 or 2012 to correct their excessive deficit – have taken effective action. Therefore, the Commission considers that no further steps in the excessive deficit procedure are necessary for these four countries, though it will continue to monitor budgetary developments closely.
This is the first time the European Commission has applied the new rules of the strengthened Stability and Growth Pact (SGP), which are part of the so-called “six-pack” on economic governance, which entered into force on 13 December 2011.
Olli Rehn, the European Commission Vice-President for Economic and Monetary Affairs and the Euro said,”Today’s report shows that the six-pack is already delivering. It has given the European Commission teeth to act when countries fail to bring their deficits under control and reduce their debt. Fiscal discipline is crucial to reinforce confidence in our public finances. I stand by my word: I am determined to fully use this new powerful set of tools from Day One.”
For Belgium, Cyprus, Hungary, Malta and Poland, the Commission’s Autumn Forecast of 10 November 2011 showed that these countries were at clear risk of not meeting their obligations to correct their excessive deficits. The next day, Vice-President Rehn sent letters to the Finance Ministers concerned making clear that, in the absence of corrective measures, further steps under the EDP, with the possibility of prompting sanctions, would become unavoidable. All four countries have since taken measures that appear sufficient to ensure a sustainable correction of the excessive deficit.
The budget balance in Hungary, in contrast, is heavily influenced by one-off revenues that do not result in a sustainable deficit correction. Although in 2011, Hungary formally respected the 3% of GDP reference value, this is only thanks to one-off measures worth some 10% of GPD, this budgetary outcome masks, however, a severe deterioration in the underlying structural balance. In fact, the structural budgetary position deteriorated in 2010 and 2011 by an estimated cumulative 2¾% of GDP in stark contrast to the recommended cumulative fiscal improvement of 0.5% of GDP. Also, in 2012, the general government deficit would remain below 3% of GDP only thanks to one-off revenues. Consequently, in 2013, the deficit is projected to reach 3¼% of GDP, even without taking into account possible negative effects of a worsening in the macroeconomic scenario and rising bond yields, thus breaching the reference value of the Treaty. In sum, the correction of the excessive deficit in 2011 is not of a sustainable nature. This leads to the conclusion that Hungary has not taken effective action in response to the Council Recommendation of July 2009.