You can imagine the scene inside the European Union’s offices in Brussels…
“Okay, fellas… that’s Greece sorted. Who’s next for a budgetary slap?”
Their attention has turned not toward the main antagonists such as Italy, Spain, Portugal, Malta, Cyprus… (hmm, this could take a while if I keep reeling them off!), but instead to a country that has so far hovered below the EU’s fiscal radar.
Step forward, Hungary…
A Storied History of Budget Misbehavior
Located in central Europe, this nation of some 10 million people became part of the EU in 2004.
And like many other countries, it’s paid very little heed to the EU’s budget rules, which state that members aren’t allowed to run up deficits in excess of 3% of their national GDP.
Since its acceptance into the cozy confines of the EU, Hungary has broken the budget deficit rules every year, except 2011.
The EU has had enough and threatened to pull the plug on $662 million worth of development funds to Hungary (due in January 2013) if it doesn’t take steps to cut its deficit this year.
The only surprise here is that despite repeated offenses from Hungary and others, it’s actually the first time that the EU has threatened to suspend aid to a country. But with new debt prevention measures in place since the eurozone crisis blew up, the EU now has greater power to go after budget offenders.
It’s particularly serious for Hungary, though, which relies on such money (worth 0.5% of its total GDP in this case) to support its economy.
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But it’s not a punishment…
An “Incentivized” Slap
“This is to be regarded as an incentive to correct a deviation, not as a punishment. It’s a fair and proportionate measure of a preventive nature.”
That’s how European Union Economic and Monetary Affairs Commissioner, Olli Rehn, explained the decision.
Needless to say, Hungary disagrees, labeling it “unfounded and unfair,” given that the country broke its streak of budget transgressions in 2011.
Quoted in the Financial Times, a spokesman for Hungarian Prime Minister, Viktor Orbán, stated:
“It’s unfathomable why the European Commission has ignored the facts: Hungary’s budget deficit was, for the first time since we joined the European Union in 2004, below 3% in 2011, and will remain so this year, as well, which makes it the country with the eighth-lowest deficit in the European Union.”
But Brussels isn’t buying it. The EU says that only happened because of “unorthodox” one-time cuts and taxes. Without them, it says that far from falling below the 3% ceiling, Hungary’s budget deficit would cruise in at almost 10% of GDP.
“Unorthodox” is certainly one way of putting it – especially when we’re talking about multiple percentage points worth of difference.
Governmental number fudging? Surely, you jest…