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IP/12/161
EUROPEAN
COMMISSION
-P
RESS RELEASE
Commission proposes to suspend 495 million ofCohesion Fund for
Hungary for 2013 for failure toaddress excessive deficit
Brussels, 22 February 2012 - The European Commission has today
proposed tosuspend EUR 495 184 000 of Cohesion Fund commitments
taking effect on 1January 2013, representing 0.5 % of GDP and 29%
of the country's cohesion fundallocations for 2013. This
unprecedented step follows the Commission's repeated
warnings to Hungary urging it to step up its efforts to end the
country's excessivegovernment deficit, and its subsequent failure
to take appropriate action. On 11January this year, the European
Commission concluded, as part of the ExcessiveDeficit Procedure
(EDP), that Hungary had not taken effective action to bring
itsdeficit to below the target of 3% of GDP by 2011 in a
sustainable and crediblemanner (see IP/12/12andMEMO/12/7). The
European Commission thereforeproposed to step up the Procedure.
This recommendation was endorsed by theCouncil of Ministers on 24
January, paving the way for a suspension of part of theCohesion
Fund commitments for Hungary.
Commenting on the proposed suspension, Olli Rehn, the European
CommissionVice-President for Economic and Monetary Affairs and the
Euro said:"Today'sproposal should be seen as a strong incentive for
Hungary to conduct sound fiscalpolicies and put in place the right
macro-economic and fiscal conditions to ensurean efficient use of
Cohesion Fund resources. It is now for the Hungariangovernment to
act before the suspension takes effect".
Johannes Hahn, Commissioner for Regional Policy, added: "It is
now up to theHungarian authorities to take the necessary measures
without delay, in order to beable to reap the full benefit of the
Cohesion Fund. Today's proposal is proportionateand leaves the
possibility to continue investments via the Fund, whilst
givingHungary the chance and time to redress the situation.''
The currentCohesion Fund Regulationexplicitly provides for the
suspension of thetotality, or part of, the Fund in the case of an
excessive government deficit and an
absence of effective action to correct it. This is the first
time such a measure isbeing applied. The proposed suspension
concerns the most recent breach only,and not past fiscal behaviour.
It is now up to the Member States to endorse theCommission's
proposal concerning Hungary. Once effective action is deemed to
betaken, the suspension would be lifted without delay.
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Background
Hungary has been under the Excessive Deficit Procedure ever
since its accessionto the EU in 2004. After deciding in January and
November 2005 that Hungary hadnot taken effective action, the
deadline for correcting this situation was postponed inOctober
2006, from 2008 to 2009. In July 2009, against the background of a
severe
economic downturn which triggered fiscal adjustment measures and
the provisionof EU/IMF balance of payments support, the Council
concluded that Hungary hadtaken effective action and issued revised
recommendations under Article 104(7)TEC, setting 2011 as the new
deadline to correct the excessive deficit in asustainable
manner.
Although Hungary is expected to notify a sizeable budgetary
surplus of 3.5% ofGDP for 2011, the country has achieved this
surplus only thanks to one-offmeasures worth some 10% of GDP
altogether (Hungary transferred private pensionfunds of 9 of GDP to
the budget. In addition, extraordinary levies wereintroduced).
Without these one-off measures the deficit in 2011 would have
reached6 % of GDP. Moreover, and in stark contrast to the
recommended cumulative fiscal
improvement of 0.5% of GDP, the structural budgetary position
deteriorated by acumulative 2 % of GDP in 2010 and 2011.
In 2012, the budgetary outcome will swing into deficit again. In
2013, the deficit isforecast to reach 3% of GDP and thus again
breach the reference value of theTreaty.
This is why the Council took a decision under Art. 126 (8) of
TFEU on 24 January2012 that Hungary has not taken effective action.
Under the Cohesion FundRegulation, failure to comply with the
recommendations under the excessive deficitprocedure can lead to
the suspension of Cohesion Fund commitments, as is thecase with
Hungary today.
The decision on the amount of Cohesion Fund commitment
appropriations to besuspended should ensure that the suspension is
both effective and proportionate,whilst taking into account the
current overall economic situation in the EuropeanUnion and the
relative importance of the Cohesion Fund for the economy of
theMember State concerned. Accordingly, it is appropriate, in case
of a first applicationof Article 4 (1) of Regulation (EC) No
1084/2006 to a given Member State, to setthe amount at 50 % of the
allocation of cohesion funds for 2013, without exceedinga maximum
level of 0.5 % of the nominal GDP of the Member State concerned
asforecast by the Commission services. This formula will apply for
the rest of the2007-2013 programming period.
The allocation from the Cohesion Fund for Hungary for this
financial programmingperiod of 2007 until 2013 amounts to 8,6
billion Euro in EU-funding, representing1.26% of GDP. The foreseen
allocation for 2013 is 1,7 billion Euro, representing1.73% of GDP.
The Cohesion Fund is available for all Member States who have aGDP
which is below 90% of the European average and aims specifically at
largerinvestments in infrastructure and environment in these Member
States.
