EU chides Hungary over deficit,backs others' plans

Launching the first phase of a disciplinary process known as an excessive deficit procedure against Hungary, the ministers said it was the only one of six EU newcomers with large budget shortfalls which had no credible mid-term strategy to remedy the problem.

In reaction, Hungarian Finance Minister Tibor Draskovics said he believed disciplinary action would go no further and repeated the goal of joining the euro in 2010. The ministers suspended similar procedures against Poland, Slovakia, Cyprus, Malta and the Czech Republic, endorsing their efforts to cut budget deficits below the EU limit, 3 percent of gross domestic product by 2006-2008.

"Action (by Hungary) is not considered sufficient to achieve the budget deficit targets in 2004 and 2005, which are expected to be missed by a sizeable margin," the ministers said in a statement from a Brussels meeting.

"(EU finance ministers) look forward to examining Hungary's new convergence programme soon."

They said they would study Hungary's updated version of its convergence programme, or a road map for cutting the budget deficit to beneath the EU's ceiling, which the country targets for 2008, two years before it hopes to join the euro zone.

The 3 percent EU limit is also a key criterion for any country wishing to join the euro zone.

It will be up to the European Commission, the EU executive body, to advise later whether Hungary has done what is needed or if there should be further disciplinary steps.

Hungary's left-wing government revised its budget deficit target twice in 2004, the latest revision to 5.3 percent of GDP from 4.6 percent. The 2005 target of 4.7 percent of GDP is also above its commitment to 4.1 percent in the convergence plan.


HUNGARY CALM

Financial markets worry that the Hungarian government might shy away from substantial spending cuts ahead of general elections next year.

Drascovics said a new programme had been submitted recently to the Commission. "Our earlier targets had been perhaps too ambitious and we underperformed," he told Reuters.

"The ministers acknowledged our achievements. Instead of having growth led by domestic consumption, we have growth fuelled by exports and investment," he added.

He reiterated that Hungary would do all it can to cut the budget deficit to below 3 percent of GDP in 2008 and join the euro zone in 2010. "These goals remain more valid than ever."

In theory, the disciplinary action could lead to suspension of EU regional aid. But in practice, Budapest would have to persistently ignore the Commission and finance ministers for months if not years to be punished.

EU ministers can suspend sanctions if they are so advised by the Commission, as they did for France and Germany, both of which topped the EU limit for a third year in a row in 2004.

Hungary is one of 10 mostly ex-communist countries that joined the EU last May. The majority of newcomers target euro zone entry one to three years earlier than Hungary.

Source: Reuters