Hungary may be threatened by EU funds suspension

The European Council will be recommended within days to have some of the cohesion fund commitments for Hungary suspended as of 1 January 2013, bruxinfo reported, citing well-informed sources in Brussels.

The Hungarian daily Népszabadság says that "in all probability, the European Commission on Wednesday will recommend a partial or full suspension of cohesion fund commitments due to Hungary’s excessive budget deficit." The government will have until the end of 2012 to reverse such ruling by announcing further adjustment measures.

Appr. EUR 1.7 billion at stake

The Hungarian financial web site portfolio.hu says that for the 2007-2013 budget period, a sum of EUR 25.3 billion has been allocated to Hungary under the EU's Regional, Cohesion and Social Funds (EUR 3.7 bn in 2011 and EUR 4 bn in 2012), of which EUR 8.6 bn over a period of seven years will come from the Cohesion Fund alone.

Under the rules of cohesion fund freezing, Hungary cohesion fund commitments starting from 1 January 2013 would be affected. These amount to around EUR 1.7 billion.

Experts, however, believe that it is impossible that the entire sum would be suspended. Ongoing projects, for instance, would not be affected, only those funds or some of them would be frozen that would be earmarked for investments in the coming years, bruxinfo reports.

First time ever sanctions

This would be the first time Brussels sanctions a member state this way.

Olli Rehn, Commissioner for Economic and Monetary Affairs, has been threatening this move since 11 January if Hungary fails to correct its budget shortfall via fiscal reform and a reduction in spending. He told the Hungarian government that measures announced in its 2012 budget were "not sufficient to correct the deficit in a sustainable and credible manner".

EC spokeswoman Karolina Kottova has confirmed that the EC college will soon discuss the block of cohesion funds to Hungary for the country’s breach of EU budget rules.

Portfolio.hu adds that Hungarian government officials are confident that the country will not lose a single euro over this measure. Mihály Varga, Prime Minister Viktor Orbán’s Chief of Staff, said the EC’s threat "is not really aimed at us", as it only wants to set an example for the other member states.