The European Commission recommended on Wednesday that its Excessive Deficit Procedure (EDP) against Hungary finally be lifted. Four other countries – Italy, Romania, Latvia and Lithuania – also expect to be given the clean bill of fiscal health. Pending endorsement by EU finance ministers at an Ecofin meeting on 21 June, Hungary is now set to exit the EU’s financial doghouse for the first time since it joined in 2004. The decision is a win for Prime Minister Viktor Orbán, whose Fidesz party can now claim credit for balancing Hungary’s books.
Speculation has been rife in recent weeks but the Commission had uttered not a peep to journalists ahead of the meeting about the possible content of its country-specific recommendations. The silence was finally broken when EU Commissioners László Andor and Antonio Tajani tweeted during the meeting that their home countries Hungary and Italy were in the clear.
With three successive austerity packages unveiled late last year and a fourth just weeks before the Commission met, the government clearly wanted to give the EU’s executive no excuse for maintaining its supervision of Hungary’s domestic finances. The country should exit the EDP “if the rules of mathematics still mean anything”, Prime Minister Viktor Orbán had said in Brussels last week.
Hungary makes threats
He added that the government was ready to increase the “crisis taxes” on banks and profitable business sectors if necessary. This could easily be interpreted as a challenge to the Commission: the windfall taxes were deeply unpopular in the Western European homes of many companies affected, and had been criticised – and in the case of a telecoms tax, legally challenged – by the EU’s executive.
On Tuesday, Economy Minister Mihály Varga even warned that the government had a “secret weapon” for raising revenue if the Commission failed to recommend an end to the EDP. As the EU’s executive convened in Brussels, Hungarian lawmakers were preparing to vote on a bill to impose a tax on advertising that would have hit foreign-owned TV stations hardest.
Rules and expectations
As a matter of fact, the Orbán government brought the deficit below three per cent in 2011 and 2012. However, the measures used to do so – a controversial nationalisation of private pension funds and the “crisis taxes”, now permanent in the case of banks – did not meet the Commission’s expectations for sustainable fiscal consolidation.
Under the Stability and Growth Pact, all member states are expected to keep their budget deficits below three per cent of GDP. Less emphasis appears to be placed on another stipulation – that national debt be kept below 60 per cent of GDP – a level that Hungary currently overshoots by some 20 percentage points. At present only Germany, Luxembourg, Bulgaria, Malta, Finland, Sweden and Estonia are not subject to an excessive deficit procedure. Malta was told on Wednesday, however, that the Commission has recommended it be placed under supervision.
Barroso: time for growth and jobs
“Now is the time to step up the fundamental economic reforms that will deliver growth and jobs, which our citizens, especially our young people, anxiously expect. This is the only way to address the two lasting legacies of this crisis – the serious loss of competitiveness in many of our Member States, and persistent unemployment, with all its social consequences. The recommendations issued by the Commission today are part of our comprehensive strategy to move Europe beyond the crisis. They are concrete, realistic and adapted to the situation of each of our Member States.”
- European Commission President Jose Manuel Barroso on Wednesday as the EU’s executive unveiled country-specific reports under the title “Moving Europe beyond the crisis”.
The Commission accepted that Hungary and others were ready to be released from supervision under the Excessive Deficit Procedure. Spain, France, the Netherlands, Poland, Portugal and Slovenia were all given extra time to balance their books, in Spain’s case until 2016. Belgium was singled out for criticism for having taken “no effective action” to reduce its deficit.
Credit cards
Fidesz and opposition Socialists welcome Commission decision over Excessive Deficit Procedure, apply spin:
“Hungary’s budget deficit is sustainably within the three per cent limit for the first time since it joined the EU in 2004. Hungary has thus escaped the doghouse that the [Socialist] Gyurcsány-Bajnai governments led it into.”
– The reaction of MEPs from the ruling
right-wing Fidesz party to the European Commission’s recommendation that Hungary be released from supervision under the Excessive Deficit Procedure.
“This favourable decision is the result of sacrifices made by Hungarian citizens. They have paid the price of deficit reduction, which was only so high because of the mistaken economic policies of the Orbán government.”
– The reaction of opposition Hungarian Socialist Party MEPs to the European Commission’s recommendation to end the Excessive Deficit Procedure against Hungary.
