EU suspends financial aid to Hungary due to its budget deficit

March 14th, 2012 - 11:20 pm ICT by BNO News  

BRUSSELS, Belgium (BNO NEWS) — The European Union (EU) on Tuesday announced that it has decided to suspend the 495.2 million euros ($648 million) in scheduled commitments for Hungary due to the country’s budget deficit issues.

The EU Council adopted the decision at a meeting of the Economic and Financial Affairs Council, and under the EU’s cohesion fund, it will take effect as of January 1st next year. In addition, the Council recommended under the EU’s excessive deficit procedure, setting 2012 as the target year for correction of Hungary’s deficit.

“Adoption of these measures follows a decision taken in January deeming action taken to correct its excessive deficit to be insufficient,” the Council said in a statement.

According to the EU, the cohesion fund provides assistance for environment and trans-European transport network projects in member states with a per capita GNP of less than 90 percent of the EU average, with the aim of strengthening economic and social cohesion and promoting sustainable development.
Since the fund’s establishment in 1994, this is the first time that a clause enabling the suspension of commitments has been invoked. Beneficiary countries can face such a measure if the conditions of sound government finances are not maintained.

However, the Council agreed to review the situation at its June 22 meeting with a view to lifting the suspension if Hungary applies the necessary corrective measures. The European country has been subject to an excessive deficit procedure since July 2004, when the Council also issued a recommendation on action to be taken in order to bring its government deficit below the EU’s reference value of 3 percent of GDP.

The recommendation adopted by the Council sets 2012 as the target year for putting an end to the current excessive deficit situation, calling on Hungary to bring its deficit below the 3 percent of GDP reference value in a credible and sustainable manner. Meanwhile, Hungary has requested further financial assistance from the IMF and the EU.

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