Brussels - European Union (EU) finance ministers have decided to suspend Hungary's access to 495 million euros (US$648.45 million) of aid from 2013, citing the country's failure to rein in its budget deficit, a senior EU official has said.
"This provides a strong incentive for Hungary to conduct sound and sustainable fiscal policy," EU Economic and Monetary Affairs Commissioner Olli Rehn told a press conference earlier this week after a meeting of EU finance ministers.
In the meantime, Rehn reassured the Hungarian government that it could get back the aid on conditions that sufficient deficit-cutting actions are taken by June.
"Action by the Hungarian authorities would lead to the lifting of the suspension before it becomes effective in case of course Hungary takes effective action," Rehn told reporters.
The decision to wait until June to give a final ruling on cutting the aid to Hungary came after the Organization for Economic Cooperation and Development (OECD) issued a forecast that Hungary could suffer economic recession.
Hungary's budget deficit of its gross domestic product (GDP) had always stayed above the 3% EU target between 2004 when it joined the EU and 2010, according to the EU statistics office.
Although the country's deficit-to-GDP ratio fell below the target, the EU insisted that is mainly due to the one-off measures, and the Hungarian government has not solved the fundamental problem.
Last month, the EU first proposed the suspension of the development funds from Hungary, attributing the decision to "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."
This was the first time that the EU planned to suspend development funds, also called cohesion funds designed to support infrastructure building in poorer EU countries, from its members because of deficit concerns. The proposal has to be endorsed by the others 26 EU members before its application.
Meanwhile, Eurozone countries on Wednesday formally approved the first batch of 39.4 billion euros (US$50.9 billion) under the second bailout package for financially-strapped Greece, said Eurogroup Chairman Jean-Claude Juncker.
All required national and parliamentary procedures have been finalised for the release of the fund, Juncker said in a statement, adding that the instalment would be disbursed in several tranches.
Most of the money is expected to be used by the Greek government to recapitalise its banks, as well as to plug its budget deficit.
Juncker urged Athens to honour its commitment of fiscal consolidation, structural reforms and privatization so as to return the Greek economy "to a sustainable path, which is in the interest of everyone."
The Greek cabinet unanimously approved the terms of its second international bailout of 130 billion euros.
The deal to keep Greece funded until 2014 will now be sent for approval to the Greek parliament, which is expected to vote on it by the end of the month.
