Nieuwe aanbevelingen Almunia voor excessief Hongaars begrotingstekort (en)

The European Commission today recommended that Hungary takes additional steps to correct its budget deficit in order to ensure a healthier budgetary path. The recommendation follows the conclusion by the European Union Finance Ministers last month that the country had not done enough to reduce its excessive deficit. The new recommendations, made under Article 104.7 of the EU Treaty, also take into account the Commission's assessment of Hungary's updated convergence programme.

"With some additional efforts, Hungary should be able to correct its deficit by 2008 and engage in a healthier budgetary path to the benefit of the country and its future generations," said Joaquín Almunia i, European Commissioner for Economic and Monetary Affairs.

The Commission today recommended to the Ecofin Council to issue new recommendations for Hungary to correct its excessive deficit in line with the country's own revised multi-annual convergence programme.

These new recommendations follow the Council decision of 18 January 2005 based on Article 104(8) stating that, despite the adoption of some measures reducing the government deficit in 2004 and 2005, the action taken by Hungary after the previous Council recommendation of 5 July 2004 was not sufficient to correct the deficit by 2008. The new recommendations are made again under Article 104.7 of the Treaty as Hungary is not yet a member of the euro area and, therefore, the last two steps of the excessive deficit procedure (i.e. Article 104(9) and 104(11) do not apply. As in the previous recommendation, the Hungarian authorities would have four months from the adoption by the Council to correct their deficit after which a new assessment would be carried out particularly with regard to the 2005 deficit target.

The Council is expected to adopt this new recommendation on 8 March.

Convergence programme

In its updated convergence programme submitted on 1 December 2004 for the period 2004-2008, Hungary expected a general government deficit of 4.5% of GDP last year, to be followed by 3.8% in 2005 and 1.8% at the end of the period. However, these projections include second pillar pension fund contributions as allowed by Eurostat until March 2007. Without the contributions, the deficit in 2005 is expected to be 4.7% and in 2008 it is set to be 2.8% of GDP.

The revised programme will allow for a correction of the excessive deficit by 2008 if backed by sufficient measures and even then leaves only a small safety margin against breaching the 3% deficit ceiling allowed in the Growth and Stability Pact.

At present this would require some additional measures amounting to half a percentage point of GDP in 2005.

The country's debt is slightly below the 60% of GDP limit set in the Pact and is scheduled to decline further to below 50% of GDP in 2008.

New recommendation

All in all, the Commission believes that Hungary ought to make an additional effort, on top of what is foreseen so far, to make sure it reaches the revised deficit target for 2005 especially as the macro-economic outturn may be less strong than predicted. This could include an increase in the "emergency" reserve package contained in the 2005 budget and a very prudent use of this package only based on clear evidence that the government is well on track to meet the deficit target for 2005. The Hungarian authorities should also keep their commitment to achieve the deficit targets of the convergence programme update in mind when deciding on timing and implementation of any tax cuts.

The text of the Commission's assessment can be found at:

http://europa.eu.int/comm/economy_finance/about/activities/sgp/procedures_en.htm