Greece Down, Spain, Portugal and Italy on the Bench and Hungary at Bat

EU Ministers are proposing to freeze 495 million EUR in EU funds destined for Hungary in 2013, the European Commission says, the first time it has ever taken such a measure. Now that Greece has been moved off the burner, the EU has taken aim at Hungary.

This unprecedented step follows the Commission's repeated warnings to Hungary urging it to step up its efforts to end the country's excessive government deficit, and its subsequent failure to take appropriate action, the Commission said in a statement.

The funds freeze in so-called cohesion funding, aimed at balancing economic disparities across the 27-nation, and would affect 29% of Hungary's allocations for the year.

The European Union executive last month concluded that Hungary had not taken effective action to reduce its deficit below the target of three per cent of gross domestic product by 2011 in a sustainable and credible manner.

Late last year, The European Commission and the IMF cut short informal aid talks with Hungary due to worries over the independence of itswidth=150 central bank.

Hungary had been seeking a standby credit line of 15-20bn euro's ($19.5bn, £12.6bn) in case it ran into trouble issuing new debt. In November its credit rating was downgraded to 'junk' status by Moody's.

EU negotiators objected to a proposed law which they said would compromise the independence of the central bank. Hungary took a 'We do not care' stance and ignored the IMF and said they would not give in to demands.

Shortly thereafter, Hungary did a complete turn about and began to woo the IMF and EU to reconsider. No one can understand the reasoning behind the behavior of the Hungarian government.

In a recent meeting in Washington DC between Hungarian representatives and Christine Lagarde stated I indicated that, before the Fund can determine when and whether to start negotiations for a Stand-By Arrangement, it will need to see tangible steps that show the authorities' strong commitment to engage on all the policy issues that are relevant to macroeconomic stability. Support of the European authorities and institutions would also be critical for successful discussions of a new program.

Today's proposal should be seen as a strong incentive for Hungary to conduct sound fiscal policies and put in place the right macro-economic and fiscal conditions to ensure an efficient use of Cohesion Fund resources, Economic Affairs Commissioner Olli Rehn said.

It is now for the Hungarian government to act before the suspension takes effect, he said.

width=220Rehn told a news conference that Hungary has been in excessive deficit ever since its EU accession in 2004, adding that the deadline for Budapest to get back within the limit had already been pushed back by three years.

Rehn's office said in January that Hungary formally respected the threshold last year, but he stressed today that this was only possible due to one-off measures worth around 10 per cent of GDP.

Without a key transfer of private pension funds to the public books, the commission maintains the deficit would have hit six per cent of gross domestic product.

The commissioner said the suspension threat was both fair and proportionate.

EU regional policy commissioner Johannes Hahn said the overarching aim of the decision was to prevent further difficulties, and underlined: If Hungary takes corrective action, the funds will be available again to spend.

Projects including flood protection around the Danube could suffer if Budapest does not respond to the commission demands.

He added: The ball is now in the Hungarian camp.