The European Union should lift a freeze on funds for Hungary following the country's positive action in putting its public finances in order, the European Commission said on Wednesday. The EU executive said in its annual recommendation that an April freeze of 495 million euros ($616 million) should be lifted as Hungary "has taken the necessary action to correct its excessive deficit."
The commission said it expected Hungary to reach a 2012 budget deficit target of 2.5 percent of gross domestic product and a 2013 budget deficit well below 3.0 percent. Budapest greeted the news Wednesday as "a huge success." "The Commission's assessment confirms that the (government's) economic policy objectives... effectively serve the proper management of the challenges that lay ahead," the economy ministry said in a statement. The freeze of so-called Cohesion Funds - to reduce economic differences between EU states - was the first case of financial sanctions since the 27-nation EU adopted new rules late last year to prevent governments from running excessively high public deficits.
But the decision was taken only after a tough fight with mainly eastern European partners that saw Poland abstain. The EU, shaken by the Greek debt crisis, has made clear in the past year that it intends to tighten laws and procedures to discipline public finances.
The April decision to launch formal excessive deficit proceedings for "non-compliance" followed a Commission report that Budapest had taken "no effective action" to get its deficit back within the EU's 3.0 percent of GDP threshold. Budapest has also been locked in a quarrel with the EU over a heavily criticised law concerning its central bank. The law was amended by parliament this week, opening the way to reopen talks with the EU and the International Monetary Fund to provide a much-needed credit line of 15-20 billion euros ($20-25 billion).