The European Commission has on Wednesday told Hungary, Latvia, Lithuania and Malta that they are on track with their programmes to reduce budget deficits below European Union’s ceiling of 3.0% of GDP. The EU executive proposed to extend the deadline for the deficit correction in the cases of Malta and Lithuania. With regards to Hungary, the Commission said there are "considerable risks" attached to the 2010 deficit target, and that "additional efforts" will be needed to bring the gap below 3% of GDP in 2011.Although both Malta and Lithuania had taken effective action, "the previous deadlines can no longer be deemed realistic in view of a significant worsening of the economic situation, justifying an extension by one year to 2011 for Malta and 2012 for Lithuania," the EC said in a statement.
As to Hungary and Latvia, the Commission concluded that they had complied with the Council recommendations but "they will need to pursue the efforts to bring their deficits below 3% by the agreed deadlines of respectively 2011 and 2012."
"I am pleased to be able to conclude that Malta, Lithuania, Hungary and Latvia have all undertaken adequate steps towards correcting their budget deficits. In the case of Malta and Lithuania, however, the worsening in the economic situation since the recommendations were made justifies extending the deadline by one year," said Joaquín Almunia, the EU’s Economic and Monetary Affairs Commissioner.
"Hungary and Latvia, which are benefiting from conditional balance-of-payments support, seem on track to bring their deficits to below 3% by the agreed deadlines but they need to pursue their efforts to ensure this really happens", he added.
The EC found that Hungarian authorities have acted in compliance with the most recent recommendations issued by the Council in July 2009.
In particular, Hungary has respected the 2009 deficit target of 3.9% of GDP by adopting fiscal consolidation measures amounting to 1.5% of GDP in 2009. It has also adopted a central government 2010 budget in line with the deficit target of 3.8% of GDP.
"However, there are considerable risks attached to the 2010 deficit target, both on the revenue and the expenditure side," the EC said.
"In view of already agreed non-compensated tax cuts in 2011, the required cumulative 0.5% of GDP effort necessary to bring the deficit below 3% in 2011 will have to be ensured through additional measures."
"The Commission will continue to closely monitor budgetary developments in Hungary in accordance with the Treaty and the SGP as well as in the context of the monitoring under the balance of payments assistance."
Background
In spring 2009, the Commission proposed to open the excessive deficit procedure (EDP) for Malta, Lithuania and Latvia, on the basis of budget deficits above 3% in 2008 and recommended their correction by 2010, 2011 and 2012, respectively.
In the case of Hungary, which has been under the Excessive Deficit Procedure (EDP) since 2004, the Commission proposed to revise the recommendation under Article 126.7 of the Lisbon Treaty (previously 104.9) with a new deadline of 2011 in view of the deterioration of the economic situation. The Council endorsed the Commission's recommendations on all four countries in July 2009, setting a deadline of 7 January 2010 to assess whether effective action has taken.
In cases where recommendations are complied with but the economic situation deteriorated significantly and beyond the control of the countries concerned, the Stability and Growth Pact (SGP) permits the Council to revise the recommendations, including a new deadline, on the basis of a Commission proposal."
Source: Portfolio Online Financial Journal
27.01.2010