Proposal for a COUNCIL DECISION suspending commitments from the Cohesion Fund for Hungary
Date: 2012-02-22
Institutions: European Commission
Subjects: Cohesion Fund, Hungary, budget deficit, infringement of EU law, recommendation (EU)

EUROPEAN COMMISSION 

Brussels, 22.2.2012  
COM(2012) 75 final 

2012/0034 (NLE) 

Proposal for a 

COUNCIL DECISION 

suspending commitments from the Cohesion Fund for Hungary  

 
 
  
 
EXPLANATORY MEMORANDUM 

1. 

THE APPLICATION OF THE COHESION FUND MACRO-FISCAL CONDITIONALITY  

The  Cohesion  Fund  was  established  to  ensure  growth-oriented  investments  in  transport 
infrastructure and environment projects, necessary for real convergence, while Member States 
were implementing budgetary consolidation in line with programmes leading to the fulfilment 
of  the  conditions  of  economic  convergence  as  set  out  by  the  Maastricht  criteria.  Conditions 
apply  to  accessing  Cohesion  Fund  assistance  relating  to  fiscal  discipline,  notably  avoiding 
excessive government deficits in line with Article 126 of the Treaty on the Functioning of the 
European  Union  (TFEU).  These  provisions  aim  to  increase  incentives  for  national 
governments  to  conduct  sound  fiscal  policies  and  put  in  place  the  right  macroeconomic 
conditions that are needed to ensure an efficient use of Cohesion Fund resources. 

Article  4  of  Council  Regulation  (EC)  No  1084/2006  of  11  July  2006,  which  sets  out 
conditions for accessing Cohesion Fund assistance, establishes that the Council may decide, 
on  a  proposal  from  the  Commission,  to  suspend  part  or  the  totality  of  commitment 
appropriations from the Fund for the Member State concerned when: (i) this Member State is 
in an excessive deficit procedure (EDP), and (ii) has not taken effective action in response to a 
Council  recommendation  under  Article  126(7)  TFEU1  to  correct  it  by  the  established 
deadline.  The  trigger  point  for  suspension  of  commitment  appropriations  is  therefore  a 
Council decision adopted on the basis of Article 126(8) of the TFEU2.  

Since  the  suspension  concerns  only  commitment  appropriations,  ongoing  projects  are  not 
affected as long as payments can be made against cumulative previous commitments which 
remain  open  during  the  time  period  referred  to  in  Article  93  of  Regulation  (EC)  No 
1083/2006.  During  this  period,  the  Member  State  can  implement  measures  to  correct  its 
excessive deficit without any impact on payments from the Cohesion Fund related to previous 
commitments. A decision to suspend commitments might have an impact on the investment 
behaviour of the Member State concerned. 

2. 

CONDITIONS  TRIGGERING  THE 
COMMITMENTS  

2.1. 

The existence of an excessive deficit 

SUSPENSION  OF  THE  COHESION  FUND 

Council  Recommendation  under  Article  126(7)  TFEU  of  7  July  2009  to  correct  the 
excessive deficit 

On 7 July 2009, the Council called on the Hungarian authorities to put an end to the excessive 
deficit  situation  by  2011  at  the  latest.  Specifically,  Hungary  was  recommended  to  limit  the 
deterioration  of  the  fiscal  position  in  2009  by  ensuring  a  rigorous  implementation  of  the 
adopted  and  announced  corrective  measures  to  respect  the  target  of  3.9  %  of  GDP. 
Additionally,  starting  from  2010,  it  was  also  recommended  to  rigorously  implement  the 
necessary consolidation measures to ensure a continued reduction of the structural deficit and 
a renewed decline of the headline deficit, with an increased reliance on structural measures, in 

1 
2 

Replacing Article 104(7) of the Treaty as referred to in Article 4 of Regulation (EC) No 1084/2006. 
Replacing Article 104(8) of the Treaty as referred to in Article 4 of Regulation (EC) No 1084/2006. 

EN 

2 

   EN 

 
                                                 
view of warranting a lasting improvement of public finances. The Council also recommended 
to spell out and adopt in a timely manner the consolidation measures necessary to achieve the 
correction  of  the  excessive  deficit  by  2011  and  ensure,  at  least,  a  cumulative  0.5%  of  GDP 
fiscal effort over 2010 and 2011. The Hungarian authorities were also asked to ensure that the 
government gross debt ratio be brought onto a firm downward trajectory. 

2.2. 

Insufficient action taken in response to the Council Recommendation of 7 July 
2009 to correct the excessive deficit 

On 24 January 2012, the Council came to the following conclusion: while Hungary formally 
respected  the  3%  of  GDP  reference  value  by  2011,  this  was  not  based  on  a  structural  and 
sustainable correction. The budget surplus in 2011 hinged upon substantial one-off revenues 
of over 10% of GDP and was accompanied by a cumulative structural deterioration in 2010 
and  2011  of  2¾%  of  GDP  compared  to  a  recommended  cumulative  fiscal  improvement  of 
0.5%  of  GDP.  Moreover,  while  the  authorities  intend  to  implement  substantial  structural 
measures in 2012 reducing the structural deficit to 2.6% of GDP, the 3% of GDP reference 
value  would  again  be  only  respected  thanks  to  one-off  measures  of  close  to  1%  of  GDP. 
Finally, in 2013, the deficit (at 3¼% of GDP) was expected to exceed the reference value in 
the TFEU once more, even after taking into account additional measures announced since the 
Commission  services'  2011  Autumn  Forecast.  The  higher  deficit  in  2013  would  mainly  be 
linked  to  the  fact  that  temporary  one-off  revenues  were  being  phased  out  as  planned,  while 
not  all  planned  structural  reforms  had  been  sufficiently  specified.  Overall,  the  Council 
concluded that the response by the Hungarian authorities to the Council recommendation of 7 
July 2009 according to Article 126(7) TFEU had been insufficient. 

3. 

PROPOSED SUSPENSION OF COMMITMENTS FROM THE COHESION FUND 

The  Commission,  having  taken  into  account:  (i)  the  existence  of  an  excessive  deficit  in 
Hungary,  and  (ii)  the  Council  decision  under  Article  126(8)  TFEU  establishing  that  no 
effective action has been taken in response to the Council recommendation of 7 July 2009 to 
end the excessive deficit situation, is of the opinion that a framework supporting government 
policies for a prompt return to sound budgetary positions needs to be ensured without delay.  

Consequently,  the  Commission  proposes  to  suspend  a  share  of  the  Cohesion  Fund 
commitment  appropriations  for  Hungary.  The  suspension  will  take  effect  from  1st  January 
2013.  

4. 

LIFTING OF THE SUSPENSION AND RE-BUDGETING THE SUSPENDED COMMITMENTS 

Following  the  Council  Decision  under  Article  126(8)  TFEU  of  24  January  2012,  the 
Commission will  recommend  to the Council to adopt a new recommendation in accordance 
with Article 126(7) with a view to correct the excessive deficit. In this recommendation, the 
Council will specify the policy actions for Hungary.  

Within a period of maximum six months after the Council has adopted the recommendation, 
Hungary will report on action taken and, on that basis, the Commission will assess whether 
the action taken by Hungary appears effective to correct the excessive deficit.  

If this assessment is positive, the Commission addresses a communication in this sense to the 
Council,  considering  that  no  further  steps  in  the  excessive  deficit  procedure  are  needed.  On 

EN 

3 

   EN 

 
that basis, the Council shall, without delay, on a proposal from the Commission, decide to lift 
the suspension.  

Subsequently, the excessive deficit procedure will be held in abeyance. During this time, the 
Commission  will  continue  to  monitor  the  implementation  of  action  taken  as  foreseen  under 
the  EDP.  If  at  any  moment  in  time,  before  abrogation  under  Article  126(12)  TFEU,  action 
taken  is  proving  inadequate,  the  Council  will,  based  on  a  recommendation  by  the 
Commission,  adopt  a  new  Decision  under  Article  126(8).  It  may,  on  a  proposal  by  the 
Commission, adopt a renewed decision to suspend Cohesion Fund commitments. 

If, however, by the end of the six-month period following the recommendation under Article 
126(7),  the  Council  were  to  decide  that  no  effective  action  had  been  taken,  the  initial 
suspension  decision  would  remain  in  force.  Moreover,  the  resulting  Decision  under  Article 
126(8) could lead to a suspension of additional Cohesion Fund commitments. 

When  lifting  the  suspension,  the  Council  shall  also  decide,  upon  a  proposal  from  the 
Commission, to re-budget the suspended commitments in accordance with the procedure set 
out in the Inter-institutional Agreement between the European Parliament, the Council and the 
Commission  on  budgetary  discipline  and  sound  financial  management  of  17  May  20063, 
which  remains  applicable  until  2013.  If  the  decision  to  lift  the  suspension  is  taken  after  31 
December  2013,  the  provisions  of  Council  Regulation  (EU)  No  […]  laying  down  the 
multiannual financial framework for the years 2014-2020 shall apply4 to the re-budgeting of 
the suspended commitments. 

3 
4 

OJ C 139, 14.6.2006, p.1 (Point 20). 
Commission proposal COM(2011) 398 final of 29.6.2011 (Article 8). 

EN 

4 

   EN 

 
                                                 
2012/0034 (NLE) 

Proposal for a 

COUNCIL DECISION 

suspending commitments from the Cohesion Fund for Hungary  

THE COUNCIL OF THE EUROPEAN UNION, 

Having regard to the Treaty on the Functioning of the European Union, 

Having  regard  to  Council  Regulation  (EC)  No  1084/2006  of  11  July  2006  establishing  a 
Cohesion  Fund  and  repealing  Regulation  (EC)  No  1164/945,  and  in  particular  Article  4(1) 
thereof, 

Having regard to the proposal from the European Commission, 

Whereas: 

(1) 

(2) 

(3) 

(4) 

(5) 

Article 174 of the Treaty on the Functioning of the European Union (TFEU) calls for 
the  Union  to  develop  and  pursue  its  actions  leading  to  the  strengthening  of  its 
economic,  social  and  territorial  cohesion  in  order  to  promote  its  overall  harmonious 
development. 

In accordance with Article 175 TFEU, Member States have to conduct their economic 
policies  and  coordinate  them  in  such  a  way  as  to  attain  the  objectives  set  out  in 
Article 174  TFEU.  The  formulation  and  implementation  of  the  Union’s  policies  and 
actions  and  the  implementation  of  the  internal  market  also  have  to  take  into  account 
the objectives set out in Article 174 and contribute to their achievement. 

Article 121 TFEU calls upon the Council to monitor closely economic developments 
in  the  Member  States  and  in  the  Union  in  order  to  ensure  closer  coordination  of 
economic  policies  and  sustained  convergence  of  the  economic  performances  of 
Member  States  and  to  ensure  consistency  of  economic  policies  with  the  Broad 
Economic Policy Guidelines. 

In  accordance  with  Article  126  TFEU,  Member  States  have  to  avoid  excessive 
government deficits. 

In  accordance  with  Article  177  TFEU,  the  European  Parliament  and  the  Council 
determine  the  tasks,  priority  objectives  and  the  organisation  of  the  Cohesion  Fund 
which  provides  a  financial  contribution  to  projects  in  the  fields  of  environment  and 
trans-European networks in the area of transport infrastructure. 

5 

OJ L 210, 31.7.2006, p.79. 

EN 

5 

   EN 

 
                                                 
(6) 

(7) 

(8) 

(9) 

In  Protocol  No  28  on  economic,  social  and  territorial  cohesion  the  Member  States 
agreed that the Cohesion Fund will provide Union financial contributions to projects in 
the  fields  of  environment  and  trans-European  networks  in  Member  States  with  a  per 
capita GNP of less than 90 % of the Union average which have a programme leading 
to  the  fulfilment  of  the  conditions  of  economic  convergence  as  set  out  in 
Article 126 TFEU. 

Article 4 of Regulation (EC) No 1084/2006 sets out conditions applicable to Cohesion 
Fund assistance and makes access to financial assistance from the Fund conditional on 
the avoidance of an excessive government deficit as set out in Article 126 TFEU6. 

On 5 July 2004, the Council decided based on Article 104(6) that an excessive deficit 
existed in Hungary and issued a first recommendation based on Article 104(7) on that 
date.  In  accordance  with  Article  126(7)  of  the  Treaty  on  7  July  2009  the  Council 
adopted the latest Recommendation to Hungary with a view to bringing an end to the 
situation  of  an  excessive  government  deficit  by  2011  at  the  latest.".  Specifically, 
Hungary was recommended to limit the deterioration of the fiscal position in 2009 by 
ensuring a rigorous implementation of the adopted and announced corrective measures 
to respect the target of 3.9 % of GDP. Additionally, starting from 2010, Hungary was 
to  implement  rigorously  the  necessary  consolidation  measures  to  ensure  a  continued 
reduction of the structural deficit and a renewed decline of the headline deficit, with an 
increased reliance on structural measures, in order to guarantee a lasting improvement 
of  public  finances.  Hungary  was  also  to  present  and  adopt  in  a  timely  manner  the 
consolidation measures necessary to achieve the correction of the excessive deficit by 
2011 and ensure, at least, a cumulative 0.5% of GDP fiscal effort over 2010 and 2011. 
Finally,  the  government  gross  debt  ratio  was  to  be  brought  onto  a  firm  downward 
trajectory. 

In accordance with Article 126(8) TFEU, on 24 January 2012 the Council adopted a 
decision  establishing  that  Hungary  had  not  taken  effective  action  in  response  to  the 
Council  Recommendation  of 7 July 2009.  The  Decision  noted  that  while  Hungary 
formally respected the 3% of GDP reference value by 2011, this was not based on a 
structural  and  sustainable  correction.  The  budget  surplus  in  2011  hinged  upon 
substantial  one-off  revenues  of  over  10%  of  GDP  and  was  accompanied  by  a 
cumulative structural deterioration in 2010 and 2011 of 2.75% of GDP compared to a 
recommended  cumulative  fiscal  improvement  of  0.5%  of  GDP.  Moreover,  while  the 
authorities  intend  to  implement  substantial  structural  measures  in  2012  reducing  the 
structural  deficit  to  2.6%  of  GDP,  the  3%  of  GDP  reference  value  would  again  be 
respected only thanks to one-off measures of close to 1% of GDP. Finally, in 2013, the 
deficit  (at  3.25%  of  GDP)  was  expected  to  exceed  the  reference  value  in  the  TFEU 
once  more  even  after  taking  into  account  additional  measures  announced  since  the 
Commission services' 2011 Autumn Forecast. The higher deficit in 2013 would mainly 
be  linked  to  the  fact  that  temporary  one-off  revenues  were  being  phased  out  as 
planned,  while  not  all  planned  structural  reforms  had  been  sufficiently  specified. 
Overall, the Council concluded that the response by the Hungarian authorities to the 
Council  recommendation  of  7  July  2009  pursuant  to  Article  126(7)  TFEU  had  been 
insufficient. 

6 

Replacing Article 104 of the Treaty as referred to in Article 4 of Regulation (EC) No 1084/2006. 

EN 

6 

   EN 

 
                                                 
(10)  Therefore,  in  the  case  of  Hungary,  the  two  conditions  set  out  in  Article  4(1)  of 
Regulation (EC) No 1084/2006 have been fulfilled. The Council, on a proposal of the 
Commission,  may  thus  suspend  part  or  the  totality  of  the  commitments  from  the 
Cohesion Fund as of 1 January 2013. The decision on the amount of Cohesion Fund 
commitment appropriations to be suspended should ensure that the suspension is both 
effective  and  proportionate,  whilst  taking  into  account  the  current  overall  economic 
situation in the European Union and the relative importance of the Cohesion Fund for 
the economy of the Member State concerned. Accordingly, it is appropriate, in case of 
a  first  application  of  Article  4  (1)  of  Regulation  (EC)  No  1084/2006  to  a  given 
Member State, to set the amount at 50 % of the allocation of cohesion funds for 2013, 
without  exceeding  a  maximum  level  of  0,5  %  of  the  nominal  GDP  of  the  Member 
State concerned as forecast by the Commission services. 

(11)  The  implementation  of  transport  and  environment  projects  or  commitments  already 
made  at  the  time  of  suspension  will  not  be  compromised  if  the  necessary  corrective 
actions are promptly implemented. By suspending commitment appropriations taking 
effect as of the following year, the ongoing project implementation will not be affected 
for  an  extended  period,  giving  the  authorities  the  necessary  time  to  adopt  measures 
that  would  restore  macroeconomic  and  fiscal  conditions  conductive  to  sustainable 
growth and employment, 

HAS ADOPTED THIS DECISION: 

495  184  000  EUR  (in  current  prices)  of  the  Cohesion  Fund  commitment  appropriations  for 
Hungary shall be suspended as of 1 January 2013. 

Article 1 

Article 2 

This Decision is addressed to Hungary. 

Done at Brussels,  

For the Council 
The President 

EN 

7 

   EN