Hungary is coming under renewed pressure from the European Union to reduce its national budget, but this time with the threat of sanctions. The country has never managed to stick to the 3% deficit guideline, but the EU has never cracked down with actual penalties for its failure to do so. Now, its executive arm has said it could withold €495m in development funds, nearly 30 percent of its take of so-called “cohesion fund” if no action is taken.
The government of Viktor Orban objected in official circles that the sanctions were unjustified, but it has responded with renewed orders to governmment ministers to find more programs to cut and ways to save. There’s more at stake than just the cohesion funds, after all, as Hungary is now trying to patch up relations with the IMF and the EU in order to win approval of a bailout package for the country. A recent IMF report said that Hungary could come under distress to make repayments on loans this year if the Euro crisis were to deepend in 2012. And with Hungary’s economic output seen to be slipping, the need of an emergency loan is becoming increasingly likely.
