The pressure on Hungary on behalf of the European Union continues to grow. On the 22nd of February, The European Commission proposed to withhold the transfer of some €495 million of cohesion funds to Hungary from 2013, if the government does not demonstrate the capacity to keep the budget deficit below 3% of GDP in a sustainable manner. Finance Commissioner Olli Rehn stressed that Hungary has until next January to take action and avoid sanctions, and pointed out that these proposed sanctions should be seen as an incentive for the government to follow a strict fiscal policy, rather than as a punishment. The sanction does not affect payments for ongoing projects.
This event is rather unique in the history of the EU, as the Commission has never before proposed to levy sanctions against a member state over an excess budget deficit procedure. The €495 million figure equates to 29% of Hungary's income from EU cohesion funds, or 0.5% of GDP. Such funds are primarily used for transport and environmental projects.
Olli Rehn also pointed out that if the government proves that it can reduce the budget deficit in a sustainable manner with structural measures, then the European Commission will not hesitate to unfreeze access to the funds. EU finance ministers are expected to decide on the proposal at their March 13 meeting. If they endorse the EC decision, then the sanctions against Hungary would enter into force from January 1.
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