14 March 2012

ECOFIN: Hungary is given incentive to pursue more responsible fiscal policy

ECOFIN ministers adopted a new recommendation for Hungary to correct their excessive government deficit and decided on a partial suspension of commitments from the Cohesion Fund for Hungary.

Ministers discussed the Commission’s first Alert Mechanism Report. There was also a discussion of the Commission’s proposal for a Financial Transaction Tax. The discussion confirmed that there is a wide range of positions on the issue and later in the Danish Presidency conclusions on the way forward will follow.

EU’s economy and finance ministers adopted a new recommendation asking Hungary to implement consolidation measures within the next six months that will bring their deficit below 3 per cent of GDP in 2012, and decided to suspend commitments from the Cohesion Fund for Hungary as of 1 January 2013. The ministers will revisit the case again at their meeting on 22 June and if the Council decides at that meeting or later that Hungary has taken the necessary corrective action they will lift the suspension without delay. The suspension does not apply to funds granted for projects already running – only for projects which are yet to be effectuated.

The Danish Minister for Economics and the Interior, Margrethe Vestager said: “I am pleased that we stood together and enforced the common rules for sound economic policy. The purpose of the suspension is to motivate Hungary to conduct a more responsible fiscal policy. And I hope that Hungary now will work to achieve the necessary budget improvements.”

As part of the European Semester, there was also a constructive discussion on the Commission’s first Alert Mechanism Report - the so-called score-board report. The procedure for macro-economic imbalances is one of the great innovations in the economic governance reform as focus is expanded to include imbalances such as competiveness and current account problems, etc. After yesterday’s discussion, the Commission will begin the work on the in-depth analyses. Based on these analyses, the Council will at a later stage during the Danish presidency decide whether the relevant countries will receive policy recommendations.

The ministers also discussed the Commission’s proposal for a European Financial Transaction Tax – also known as a Tobin tax. The Danish Presidency has accelerated the work on the proposal and will after yesterday’s discussion continue the work on technical level.

Margrethe Vestager said: ”At the meeting, economy and finance ministers discussed the opportunities and the challenges in the Commission’s proposal on a Financial Transaction Tax and provided input for the further work. As I expected, the discussions showed that there continues to be a wide variety of opinions. No final conclusions were drawn at the meeting but we will return to the issue later during the Danish Presidency.”

Press release

© ECFIN