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Hungary must step up efforts against deficit: EU

EconomyPosted by administrator Wed, July 21, 2010 11:38:22
BRUSSELS — Hungary must make more efforts to slash its public deficit under European Union limits by next year, the EU's executive arm said Saturday after a mission on financial aid to Budapest.

The European Commission said it decided to postpone conclusions of its latest financial aid review mission to Hungary to give the government more time to clarify its budgetary plans."Hungary has returned to a positive economic growth path and now has one of the lowest budget deficits in the EU. I welcome the authorities' commitment to the 2010 deficit target," said EU economic affairs commissioner said Olli Rehn.

"However, the correction of the excessive deficit by next year will require tough decisions, notably on spending. Care will also be needed to ensure a stable environment for both domestic and international investors," he said.

Hungary has vowed to slash its deficit to 3.8 percent of growth domestic product this year as part of a 20-billion-euro (25-billion-dollar) financial lifeline it agreed with the IMF, World Bank and EU in late 2008.

In February, the previous government had said that Hungary would not draw on the complete amount of the bailout, arguing improved economic situation allowed the government to drum up financing on the markets itself.

But the new conservative government said last month that it wants to negotiate an extension of the deal, which expires in October, until December and reach a new agreement for 2011.

Prime Minister Viktor Orban unveiled a package of austerity measures last month, including efficiency savings worth up to 120 billion forint (430 million euros) and an annual 200-billion-forint tax on banks.

The European Commission said the corrective measures considered so far are "largely of a temporary nature" and "fall somewhat short" of what is required.

"Hence, the government has to make increased efforts to bring the deficit below 3.0 percent of GDP, on a sustainable basis, in 2011," the commission said following a July 6-17 mission with IMF officials.

The EU executive body said a planned levy on the financial sector would help in the short term, but it warned that it could also have "a significantly negative impact on the country's investment climate and economic growth." (AFP)

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