Hungary denounces planned cuts in its EU regional funds
The European Union risks undermining the credibility of its drive against national budget overshoots if it strips Hungary of structural funds as punishment for running an excessive deficit, a leader of the ruling Fidesz party said.
The EU is due to unveil its assessment of Hungary's latest deficit-cutting measures on 7 November, which could be the basis of a cut in funds and can also influence Hungary's credit talks with Brussels and the International Monetary Fund (IMF).
Lajos Kosa, a Fidesz vice chairman was quoted on Saturday by the daily Magyar Nemzet as saying that the government had implemented tight fiscal policy since it was elected in 2010, and a cut in funds would be "a shame".
"If they do [cut funds[, that will have an amazingly bad message in the entire Union which is cracking anyway even without that," Kosa said.
While Kosa is regarded as the most outspoken of Fidesz's leaders, the government's tendency to talk tough about Brussels and the IMF at home has bolstered expectations that talks over an international aid deal will eventually fall apart.
Kosa repeated in the interview that Hungary needed an IMF deal but analysts in a recent Reuters poll saw only a 50% chance, judging that a more positive mood to global markets has eased pressure on the government's borrowing costs.
Two deficit-cutting packages that Hungary submitted to Brussels in the past weeks included a further rise in taxes on banks and the government has said that burden can even grow if the EU wants more measures.
The central bank and international analysts have said that the heavy taxation on banks hinders recovery from recession and IMF spokesman Gerry Rice said on 1 November that Hungary needed a change in attitude for the talks to go on.
The European Commission has proposed suspending regional funds payments for countries that flout EU budget discipline rules.
The proposal was put forward under pressure from Berlin, which called for financial sanctions against countries that do not respect the EU's Stability and Growth Pact, which limits deficits at 3% of a country's GDP.
Johannes Hahn, Commissioner in charge of regional policy, said the measure would only be applied as a last resort but was necessary to establish a tighter link between EU cohesion funding and the countries’ economic and fiscal policies.
The proposal came as part of the EU executive's blueprint for the next generation of EU regional funds after 2013, presented in October 2011.
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