EU freezes Hungary funds over excessive deficit

BRUSSELS: EU finance ministers will freeze 495 million euros ($648 million) in funds due to Hungary next year in a first case of sanctions if Budapest fails to rein in its deficit, Denmark's finance minister said Tuesday.

Announcing the decision, Denmark's Margrethe Vestager said the European Union stressed "that we will lift the suspension... if Hungary takes decisive action by June 22" on its public spending plans for 2012.

The punitive measure was adopted after a tough debate with mainly eastern European states. Lithuania pushed for a delay by two months and Poland abstained from the final decision.

"This provides a strong incentive for Hungary to conduct sound and sustainable fiscal policy," said EU economy commissioner Olli Rehn.

He told a news conference that "effective action" in Hungary to bring down its spending gap "will lead to the lifting of the suspension before (it) becomes effective."

A diplomatic source said the decision was reached after the European Commission warned that inaction would have set a "dangerous precedent" with other states expected to fall into excessive deficit -- more than 3.0 percent of annual output -- when EU public spending figures come out in May.

During the talks, Austria accused the EU of applying "double standards," as Spain obtained a concession on its public deficit the previous evening.

Austrian Finance Minister Maria Fekter said that Vienna "would have preferred to give Hungary more time to adjust."

Rehn said "different deadlines" meant direct comparisons of the Spanish and Hungarian cases were not valid, stressing that Hungary had seen its 2011 deadline extended in practice to 2012 under this decision.

Spain has to return its annual public deficit to within the EU's ceiling of 3.0 percent of gross domestic product in 2013.

Rehn also said that rules on sanctions for eurozone and non-eurozone states are different -- and that the penalty on Hungary would not be as severe as sanctions for currency partners, which would involve "a fine taken immediately" with that money then "lost."

For non-eurozone countries, he said there is "plenty of time" to act.