HTML PUBLIC "-//W3C//DTD HTML 4.01 Transitional//EN"L 66/6
EN
Official Journal of the European Union
6.3.2012
DECISIONS
COUNCIL DECISION
of 24 January 2012
establishing whether effective action has been taken by Hungary in response to the Council
recommendation of 7 July 2009
(2012/139/EU)
THE COUNCIL OF THE EUROPEAN UNION,
(5) On
8
March
2005,
upon
a
recommendation
from
the
Commission, the Council adopted a second recommen
dation in accordance with Article 104(7) TEC,
Having regard to the Treaty on the Functioning of the European
confirming the 2008 deadline for the correction of the
Union, and in particular Article 126(8) thereof,
excessive deficit. After a substantial deterioration of the
budgetary outlook in Hungary, by Decision
2005/843/EC ( 5 ) taken on 8 November 2005 the
Having regard to the recommendation from the European
Council, in accordance with Article 104(8) TEC, estab
Commission,
lished that Hungary had for the second time failed to
take effective action in response to the Council recom
mendations.
Whereas:
(1) According
to
Article
126(1)
of
the
Treaty,
Member
States (6) Accordingly,
on
10
October
2006,
upon
a
recommen
are to avoid excessive government deficits.
dation from the Commission, the Council adopted a
third recommendation in accordance with Article 104(7)
TEC to Hungary, postponing the deadline for the
(2)
The Stability and Growth Pact is based on the objective
correction of the excessive deficit until 2009. On
of sound government finances as a means of
7 July 2009, the Council in its recommendation
strengthening the conditions for price stability and for
adopted in accordance with Article 104(7) TEC
strong sustainable growth conducive to employment
concluded that the Hungarian authorities could be
creation. The Stability and Growth Pact includes
considered to have taken effective action in response to
Council Regulation (EC) No 1467/97 of 7 July 1997
the recommendations from October 2006. With respect
on speeding up and clarifying the implementation of
to the background of the severe downturn in the context
the excessive deficit procedure ( 1 ), which was adopted
of the economic and financial crisis, in the same recom
in order to further the prompt correction of excessive
mendation the Council issued a revised version of the
general government deficits.
third recommendation pursuant to Article 104(7) TEC.
(3) By
Decision
2004/918/EC
( 2 ) taken on 5 July 2004 the
Council, upon a recommendation from the Commission,
(7) The
Council
recommendation
of
7
July
2009
called
on
decided, in accordance with Article 104(6) of the Treaty
the Hungarian authorities to put an end to the excessive
establishing the European Community (TEC), that an
deficit situation by 2011 at the latest. Inter alia, Hungary
excessive deficit existed in Hungary ( 3 ).
was recommended: (i) to limit the deterioration of the
fiscal position in 2009 by ensuring a rigorous implemen
tation of the adopted and announced corrective measures
(4) On
5
July
2004
the
Council,
upon
a
recommendation
to respect the target of 3,9 % of GDP; (ii) starting from
from the Commission, recommended in accordance with
2010, to implement rigorously the necessary consoli
Article 104(7) TEC that the Hungarian authorities take
dation measures to ensure a continued reduction of the
action in a medium-term framework in order to bring
structural deficit and a renewed decline of the headline
the deficit below 3 % of GDP by 2008. By Decision
deficit, with an increased reliance on structural measures,
2005/348/EC ( 4 ) taken on 18 January 2005 the
in view of warranting a lasting improvement of public
Council, in accordance with Article 104(8) TEC, estab
finances; (iii) to spell out and adopt in a timely manner
lished that Hungary had not taken effective action in
the consolidation measures necessary to achieve the
response to the Council recommendation.
correction of the excessive deficit by 2011; (iv) to
ensure a cumulative 0,5 % of GDP fiscal effort over
( 1 ) OJ L 209, 2.8.1997, p. 6.
2010 and 2011; and (v) to ensure that the government
( 2 ) OJ L 389, 30.12.2004, p. 27.
gross debt ratio was brought onto a firm downward
( 3 ) All EDP-related documents for Hungary can be found at the
trajectory.
following website: http://ec.europa.eu/economy_finance/economic_
governance/sgp/deficit/index_en.htm
( 4 ) OJ L 110, 30.4.2005, p. 42.
( 5 ) OJ L 314, 30.11.2005, p. 18.

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EN
6.3.2012 Official
Journal
of
the
European
Union L
66/7
(8) On
27
January
2010
the
Commission
adopted
a
(b) regarding 2012, the draft budget targets a deficit of
Communication to the Council ( 1 ) concluding that,
2,5 % of GDP in line with the 2011 update of the
based on information available at the time, Hungary
Convergence Programme. In order to achieve this, the
had taken effective action in response to the Council
budget proposal contains several measures, altogether
recommendation of 7 July 2009. The Commission
amounting to close to 4 % of GDP according to
arrived at its conclusion by taking into account, in
the authorities, while setting aside 0,7 % of GDP as
particular, consolidation measures of 1,5 % of GDP to
an extraordinary reserve buffer. In contrast, the
meet the 2009 deficit target of 3,9 % of GDP, structural
2011 autumn forecast projects the 2012 general
reforms in the pension and the social benefit system
government deficit to reach 2,8 % of GDP and the
supporting the achievement of the 2010 deficit target
structural deficit to improve by 2,4 % of GDP.
of 3,8 % of GDP, and progress regarding the implemen
Compared to the draft budget, these higher
tation of the new fiscal framework, but at the same time,
deficit numbers reflect, among other factors, a
the Commission gave an alert about considerable risks.
lower economic growth projection for 2012 by 1
percentage point as well as a more prudent
assessment of revenue and expenditure developments.
(9) On
15
December
2011
Hungary
submitted
its
Report
on
At the same time, the draft budget assumes in line
the measures taken in response to Council Recommen
with the relevant legislation that the extraordinary
dation of 7 July, 2009 under Article 126(7) of the
reserve is not expected to be spent. Nevertheless,
Treaty, December 2011 (‘December 2011 EDP progress
the 3 % GDP deficit threshold is only respected on
report’) to the Commission and the Council. On the basis
the back of a close to 0,9 % of GDP one-off revenue
of, inter alia, that progress report, an updated assessment
stemming from the abovementioned extraordinary
of the action taken by Hungary to correct the excessive
sectoral levies;
deficit by 2011 in response to the Council recommen
dation of 7 July 2009 leads to the following conclusions:
(c) according to the 2011 autumn forecast, and based
on the usual no-policy-change assumption, the
(a) in 2010 the actual budget deficit exceeded the target
budget deficit was projected to deteriorate again to
by 0,4 % of GDP while economic growth was
3,7 % in 2013. This is chiefly due to the fact that the
stronger in 2010 than foreseen by the Commission
phasing out of the extraordinary levies of around
services’ 2009 spring forecast, which had served as
0,9 % of GDP is not expected to be counterbalanced
the basis for the Council recommendations of 7 July
by the additional savings from the structural reform
2009. In 2011, the general government balance is
programme for that year;
expected (both by the government and the
Commission services’ 2011 autumn forecast –
‘2011 autumn forecast’) to turn into surplus, but
(d) based on budgetary developments since the
only thanks to one-off revenues of 9,75 % of GDP
publication of the 2011 autumn forecast, the 2012
linked to the transfer of the pension assets from the
projection of general government deficit of 2,8 % of
private pension schemes to the state pillar and of
GDP still appears to be plausible (without taking into
0,9 % of GDP from sectoral levies (on telecom,
account the recent deterioration in the macro
energy, retail and financial sectors). Without one-off
economic environment). This is explained by the
measures the deficit would have reached around 6 %
fact that the deficit-decreasing impact of the new
of GDP and by far surpassed the 3 % of GDP
consolidation package of 0,4 % of GDP adopted
reference value set in Article 1 of Protocol (No 12)
by the government on 15 December 2011 is
on the excessive deficit procedure attached to the
broadly counterbalanced by the deficit-increasing
Treaty on European Union and the Treaty. In their
amendments adopted to the draft budget as well as
2011 autumn EDP notification, the Hungarian auth
by the net budgetary costs of the agreement with the
orities projected a surplus of 3,9 % of GDP. The
banking sector concluded on 15 December 2011
2011 autumn forecast projected a somewhat lower
which are not yet appropriately offset by additional
surplus (notably 3,6 % of GDP), since it included the
consolidation measures;
assumption of part of the debt of public transport
companies (0,2
% of GDP). Based on recent
information on one-offs received after the cut-off
(e) for 2013, taking into account some further specifi
date of the 2011 autumn forecast, the surplus may
cations of the structural reform programme (related
even be lower. As to the structural deficit, it
government and Parliamentary decisions are detailed
deteriorated by 1,5 % in 2010 and by 1,25 % in
in Hungary’s December 2011 EDP progress report),
2011, a cumulative 2,75 % of GDP, contrary to the
the positive base effect from 2012 and the net cost
Council recommendation of 7 July 2009 that recom
stemming from the agreement with the banking
mended to ensure, at least, a cumulative 0,5 % of
sector, the 2013 deficit projection contained in the
GDP fiscal effort over these 2 years as needed to
2011 autumn forecast could be lowered from 3,7 %
correct the deficit by the 2011 deadline in a
of GDP to 3,25 % of GDP, which is, nevertheless, still
sustainable manner. This structural deterioration is a
clearly above the 3 % GDP deficit threshold. The
reflection of the fact that tax cuts amounting to over
difference between the present updated assessment
2 % of GDP were not sufficiently compensated by
and the official target (2,2 % of GDP) laid down in
structural measures;
the April 2011 Convergence Programme of Hungary
notably stems from the fact that, in the absence of
( 1 ) COM/2010/0010 final.
specific steps, about half of the structural reform

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L 66/8
EN
Official Journal of the European Union
6.3.2012
programme could not be taken into account. The
(10) The overall conclusion is while Hungary formally
remainder of the difference compared to the official
respects the 3 % of GDP reference value by 2011 this
target is related to a higher expenditure forecast,
is not based on a structural and sustainable correction.
notably in the area of state-owned transport enter
The budget surplus in 2011 hinges upon substantial one-
prises and the maintenance of roads and also incor
off revenues of over 10 % of GDP and is accompanied by
porates some difference in growth assumptions.
a cumulative structural deterioration in 2010 and 2011
Further structural reforms are planned, that could
of 2,75 % of GDP compared to a recommended cumu
reduce the deficit forecast, but are not yet sufficiently
lative fiscal improvement of 0,5 % of GDP. Moreover, the
specified;
authorities are implementing substantial structural
measures in 2012 reducing the structural deficit to
(f) the risks to these updated medium-term projections
2,6 % of GDP; the 3 % of GDP reference value is again
are tilted to the downside. There is some positive
only respected thanks to one-off measures of close to
risk, notably stemming from the continuation of
1 % of GDP. Finally, in 2013, the deficit (at 3,25 % of
better-than-expected revenue inflows into 2012 and
GDP) is expected to surpass the 3 % GDP deficit
2013. However, negative risks are expected to be
threshold again even after taking into account additional
higher than the offsetting positive risks. In particular,
measures announced since the 2011 autumn forecast.
interest rates for all maturities have increased, the
The higher deficit in 2013 is mainly linked to the fact
exchange rate has weakened, and the medium-term
that temporary one-off revenues are being phased out as
economic outlook seems to have worsened since the
planned, while not all planned structural reforms are
2011 autumn forecast was published on
sufficiently specified. Overall, this supports the
10 November 2011. Overall, if these factors were
conclusion that the response by the Hungarian auth
taken into account, the deficit projections in both
orities to the Council recommendation of 7 July 2009
2012 and 2013 would be further increased by
adopted in accordance with Article 104(7) TEC has been
0,5 % of GDP, leading to deficits of just above 3 %
insufficient,
of GDP and 3,75 % of GDP, respectively;
HAS ADOPTED THIS DECISION:
(g) according to the 2011 autumn forecast, gross public
debt, given both the forecast deficit numbers and the
exchange rate assumptions, is expected to increase
Article 1
again to nearly 77 % of GDP by 2013, following a
temporary drop in 2011 due to the takeover of the
Hungary has not taken effective action in response to the
private pension assets. If the medium-term budgetary
Council recommendation of 7 July 2009 in accordance with
projections were updated only on the basis of new
Article 104(7) TEC within the period laid down in that recom
measures adopted after the cut-off date of the
mendation.
forecast, the projected 2012 debt ratio would be
largely unchanged and improve only slightly in
2013. However, further possible revisions in the
Article 2
budgetary projections, taking into account most
This Decision is addressed to Hungary.
notably the increased yields, the end-2011 HUF/EUR
exchange rate of 311 (which is around 12 % weaker
than the technical assumption used in the 2011
autumn forecast), as well as the weaker macro
Done at Brussels, 24 January 2012.
economic environment, would lead to a debt ratio
of around 80 % in 2011, after which it would
stabilise at around 78,5 % in both 2012 and 2013,
For the Council
whereas the Council recommended that the gross
debt ratio should be brought onto a firm
The President
downward trajectory.
M. VESTAGER

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