Pursuant to the revised rules of the Stability and Growth Pact, it will be more difficult for the European Commission to subject a member state to the excessive deficit procedure if essential investments that increase the resilience of the economy are underway. All national expenditure related to the co-financing of EU-funded programs will have to be excluded from the calculation of the government’s expenditure.
Over-indebted countries will have to reduce their debt by an average of 1% per year if their debt exceeds 90% of GDP, and by 0.5% per year if the debt is between 60% and 90%.
Hungary’s public debt as a percentage of GDP stood at 73.5 percent at the end of 2023.
The Stability and Growth Pact also stipulates that the budget deficit cannot exceed 3 percent, and those member states that are above this level must reduce it annually, reaching the target level within three years. There are certain exemptions from this for defense investments, as well as if certain developments that improve economic resilience are carried out in the given member state.
In the case of the Hungarian budget, the deficit was 6.7 percent, so it was well above the target level at the end of 2023, and the government is planning a level of 4.5 percent for this year.
And all of this makes it almost certain that the excessive deficit procedure will be launched against Hungary as well.
Based on the latest EU data, Brussels called on roughly 10 other member states to report due to the high level of public debt and deficits.
However, this will not necessarily lead to the rough fighting between the European Commission and the Hungarian government seen in the first half of the 2010s: the new rules also allow greater flexibility: instead of the usual four years, three extra years are provided to achieve the objectives of the national plan , so that the respective countries return to a sustainable budget path. Member States can request consultation with the European Commission before it issues binding guidelines, and national independent budgetary institutions will play a greater role in checking the adequacy of governments’ budget forecasts.
The texts were accepted by the representatives of the European Parliament with a large majority, and the European Council only has to give its official approval. Once adopted, the rules will enter into force after publication in the Official Journal of the EU. Member States must submit their first national plans by 20 September 2024. The purpose of the new rules is to promote public investments in priority areas, to develop a more personalized approach and to take social aspects into account more.
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Tags: inquiry due budget deficit coming proceedings initiated Hungary
