Hongaarse begrotingssituatie blijft zorgwekkend (en)
Given a substantial deterioration of the budgetary outlook in Hungary, the European Commission today recommended to the Council to decide for the second time this year that the Hungarian government has failed to take effective action to correct its deficit. The deficit targets that the government set itself for 2005 and 2006 will be missed by a large margin, calling into question the 2008 deadline for correcting the deficit below the 3% Treaty reference value.
"The substantial deviation, both in 2005 and 2006, from the planned adjustment path is worrying and puts into question the credibility of the correction of the excessive deficit by 2008," said Joaquín Almunia, European Commissioner for Economic and Monetary Affairs.
On 5 July 2004, the Council decided that Hungary, together with five other countries that also joined the European Union in 2004, had an excessive deficit since it was well in excess of the 3% reference value set in the Maastricht Treaty. The deadline for the correction of the deficit was set at 2008 and annual targets were agreed according to Hungary's own convergence programme. In accordance with the excessive deficit procedure (EDP), defined in the European Union Treaty and in Regulation 1467/97, the Council of ministers also set a deadline for taking "effective action" to reduce the deficit (recommendation under Article 104(7) of the Treaty).
In January 2005, the Council concluded that the action planned by the Hungarian government was not sufficient to reach the deficit target in 2005 and a new recommendation was subsequently issued.
The Commission today concluded that the Hungarian budgetary outlook had considerably deteriorated since July - when the Commission last assessed it - and that the deficit this year would be significantly higher than the initial 3.6% target. The government's new target is 6.1%. Hungary has also revised its 2006 target to 5.2% from 2.9%.
The Commission, therefore, recommends the Council to decide, in accordance with Art 104(8) of the Treaty, that Hungary has again failed to take effective action to correct its excessive deficit. This is because:
(i) the 2005 deficit target of 3.6% of GDP will be missed by at least 2½% of GDP taking into account the appropriate statistical treatment of the planned sale of motorways and slippages of about ½ % of GDP that the government has decided not to correct contrary to previous commitments;
(ii) the draft budget for 2006 foresees a deficit target of 5.2%, but even the new figure could be missed again by a large margin mainly as a result of tax cuts that are not accompanied by the necessary expenditure retrenchment;
(iii) furthermore, the planned implementation of tax cuts is contrary to the Council recommendation, which made the timing and implementation of any tax cuts conditional upon the achievement of the deficit targets; and
(iv) finally, the substantial deviation both in 2005 and 2006 from the planned adjustment path of the Hungarian government and the slow progress in structural reforms put into question the credibility of the correction of the excessive deficit by 2008 and increases the macro-economic imbalances.
As Hungary is not yet a member of the euro zone, the 104(9) and subsequent steps in the procedure are not applicable. The next step, if the Council endorses the present Commission recommendation, is therefore a repetition of the recommendation under 104(7) of the Treaty.
The full document of the present Commission communication and the previous documents relating to Hungary can be found under the following link:
 The other five countries are the Czech Republic, Cyprus, Malta, Poland and Slovakia.
 Since the deficit was significantly above the reference value on membership date and because of the ongoing structural shift to a modern service-oriented market economy, Hungary was given a longer period than is usual under the EDP procedure.
 All deficit targets include as government revenues so-called second-pillar pension funds as is temporarily allowed under a 2004 Eurostat decision. If the pension funds are excluded in 2005, for example, the deficit is expected to be 7.4%. The revised 2006 deficit target includes the standard recording of the purchase of military aircraft that adds 0.5% of GDP to the announced target of 4.7% of GDP.