Proposal for a COUNCIL IMPLEMENTING DECISION lifting the suspension of commitments from the Cohesion Fund for Hungary
Date: 2012-05-30
Institutions: European Commission
Subjects: Cohesion Fund, Hungary, budget deficit, infringement of EU law, suspension of aid

EUROPEAN COMMISSION 

Brussels, 30.5.2012  
COM(2012) 275 final 

2012/0144 (NLE) 

Proposal for a 

COUNCIL IMPLEMENTING DECISION 

lifting the suspension of commitments from the Cohesion Fund for Hungary  

EN 

   EN 

 
 
 
  
 
EXPLANATORY MEMORANDUM 

1. 

RECENT  COUNCIL  DECISION  TO  SUSPEND  COMMITMENTS  FROM  THE  COHESION 
FUND 

On 13 March 2012, by Implementing Decision 2012/156/EU1, the Council decided to suspend 
EUR 495.2 million of commitments from the Cohesion Fund for Hungary, taking effect from 
1  January  2013  and  representing  0.5%  of  GDP  and  29%  of  the  country's  Cohesion  Fund 
allocation for 2013. This decision was based on Council decision 2012/139/EU2 of 24 January 
2012,  establishing  that  Hungary  had  not  taken  effective  action  in  response  to  the  Council 
Recommendation of 7 July 2009 to correct the excessive deficit in a credible and sustainable 
manner by 2011.  

Conditions  apply  to  accessing  Cohesion  Fund  assistance  and  make  access  to  this  assistance 
conditional on the avoidance of an excessive government  deficit  in  line  with  Article  126  of 
the  Treaty  on  the  Functioning  of  the  European  Union  (TFEU)3.  These  conditions  aim  to 
increase the incentives for national governments to conduct sound fiscal policies, thus helping 
to put in place the right macroeconomic conditions that are needed to ensure an efficient use 
of  Cohesion  Fund  resources.  Specifically,  Article  4(1)  of  Council  Regulation  (EC)  No 
1084/2006 of 11 July 2006 establishing a Cohesion Fund and repealing Regulation (EC) No 
1164/94  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)  TFEU4  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) TFEU5.  

The decision on  the amount  of  Cohesion Fund commitments to be suspended  was  aimed to 
ensure that the suspension was 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.  

2. 

CONDITIONS  FOR  LIFTING  THE  SUSPENSION  OF  COHESION  FUND  COMMITMENTS 
FOR HUNGARY 

According to Article 4(2) of Regulation (EC) No 1084/2006, the Council shall decide, without 
delay, to lift the suspension of the commitments concerned if it establishes that the Member 
State concerned has taken the necessary corrective action.  

At  the  time  of  adoption  of  Council  Implementing  Decision  2012/156/EU,  the  Commission 
issued  the  following  statement:  "In  order  to  facilitate  the  decision  of  the  Council,  the 
Commission  is  committed  to  present  to  the  Council  without  delay  its  assessment  of  whether 

1 
2 
3 

4 
5 

OJ L 78, 17.03.2012, p. 19. 
OJ L 66, 6.3.2012, p. 6. 
Replacing  Article  104  of  the  Treaty  establishing  the  European  Community  (TEC)  as  referred  to  in 
Article 4 of Regulation (EC) No 1084/2006. 
Replacing Article 104(7) TEC as referred to in Article 4 of Regulation (EC) No 1084/2006. 
Replacing Article 104(8) TEC as referred to in Article 4 of Regulation (EC) No 1084/2006. 

EN 

2 

   EN 

                                                 
effective  action  has  been  taken,  following  adoption  by  the  Hungarian  Government  of 
corrective measures fulfilling the Council Recommendation of 13 March 2012 under Article 
126(7) TFEU.". Moreover, in response to the commitment by the Hungarian government that 
the necessary correction action would be reflected in Hungary's convergence programme due 
in  April  2012  and  in  other  related  publicly  available  documents  and  decisions,  the  Council 
indicated  that  it  would  return  to  this  matter  at  its  meeting  of  22  June  2012  with  a  view  to 
lifting the suspension if the conditions are met.  

2.1. 

The Council Recommendation under Article 126(7) TFEU of 13 March 2012 to 
durably correct the excessive government deficit by 2012  

In  its  new  (the  fifth)  recommendation  to  Hungary  under  Article  126(7)  TFEU,  the  Council 
established a postponed deadline of 2012 for bringing the situation of an excessive deficit to 
an  end  in  a  credible  and  sustainable  manner.  Specifically,  the  Council  asked  the  Hungarian 
authorities  to:  (i)  ensure  the  attainment  of  the  2012  deficit  target  of  2.5%  of  GDP,  which 
based  on  the  Commission  Services'  February  Interim  Forecast  would  require  an  additional 
fiscal effort of at least 0.5% of GDP that should be reached through the further specification 
and  implementation  of  already  planned  as  well  as  further  consolidation  measures  of  a 
structural nature as necessary; (ii) allocate possible windfall gains for improving the headline 
balance; (iii) take necessary additional measures of a structural nature as needed to ensure that 
the deficit in 2013 remains well below the 3% of GDP threshold even after the full phasing-
out  of  one-off  revenues  of  close  to  1%  of  GDP;  and  (iv)  incorporate  sufficient  reserve 
provisions in the forthcoming budget laws. At the same time, the Council underlined that the 
budgetary adjustment should contribute to bringing the government debt ratio onto a declining 
path  and  that  it  also  needed  to  be  supported  by  the  proposed  improvements  in  the  fiscal 
governance framework. 

2.2. 

The Commission assessment of the action taken 

Based on current information it appears that Hungary has taken action representing adequate 
progress  towards  the  correction  of  the  excessive  deficit.  In  particular,  despite  the  slight 
weakening  of  the  underlying  macroeconomic  environment  as  shown  in  the  Commission 
services' 2012 spring forecast, the budget deficit is expected to reach 2.5% of GDP in 2012 
and  remain  well  below  the  3%  of  GDP  reference  value  in  2013  as  recommended  by  the 
Council  in  March.  The  new  measures  announced  in  the  context  of  the  convergence 
programme imply additional structural measures of 0.3% of GDP and an improvement of the 
structural  balance  by  ¼%  of  GDP  in  2012  compared  to  the  assessment  underlying  the 
Council's  March  2012  recommendations.  This  is  somewhat  lower  than  the  recommended 
additional fiscal effort of 0.5% of GDP but can considered as broadly acceptable, taking into 
account  the  revisions  to  potential  GDP  growth  and  that  projected  revenues  are  lower  than 
what  could  be  usually  expected  based  on  standard  tax  elasticities.  The  use  of  windfall 
revenues to improve on the target and the incorporation of sufficient reserve provisions in the 
forthcoming budgets will yet need to be demonstrated. Based on the Spring 2012 forecast, the 
general government debt is expected to decrease to 78.5% of GDP in 2012 and slightly further 
in  2013.  Finally,  some  progress  has  been  made  on  enhancing  the  fiscal  governance 
framework, but important reforms are still to be designed and adopted before the end of the 
Spring session of Parliament. Against this background, and also in light of the recent worse-
than-expected  first  quarter  growth  data,  the  Commission  will  continue  to  closely  monitor 
budgetary  developments  in  Hungary  in  accordance  with  the  Treaty  and  the  Stability  and 
Growth  Pact,  in  particular  in  the  light  of  the  prolonged  history  of  this  excessive  deficit 

EN 

3 

   EN 

procedure.  The  bi-annual  EDP  reports  by  the  government  will  be  one  of  the  sources  of 
information for this purpose. 

3. 

PROPOSED  LIFTING  OF  THE  SUSPENSION  OF  COMMITMENTS  FROM  THE  COHESION 
FUND FOR HUNGARY 

The Commission, having taken into account its assessment of the action taken by Hungary in 
response of the Council Recommendation under Article 126(7) TFEU of 13 March 2012 with 
a view to bringing the situation of excessive government deficit to an end by 2012 is of the 
opinion that the conditions for lifting the suspension of commitments from the Cohesion Fund 
are met.  

Accordingly, the Commission proposes to the Council to lift the suspension of commitments 
from the Cohesion Fund laid down in Council Implementing Decision 2012/156/EU. 

The  Commission  will  continue  to  closely  monitor  fiscal  developments  in  Hungary,  as 
foreseen under Article 10 of Council Regulation 1467/97 of 7 July 1997 on speeding up and 
clarifying the implementation of the excessive deficit procedure, including on the basis of the 
bi-annual  EDP  reports  produced  by  the  Government,  and  in  the  context  of  post-programme 
surveillance  exercise  after  the  expiry  of  the  financial  assistance  made  available  pursuant  to 
Council  Decision  2009/102/EC  of  4  November  2008  providing  Community  medium-term 
financial assitance for Hungary6 or under any new Union financial assistance programme for 
Hungary  that  the  Council  may  approve.  If  at  any  moment  in  time,  before  abrogation  under 
Article 126(12) TFEU, action taken is proving inadequate, the Commission will recommend 
to the Council to adopt a new Decision under Article 126(8) and may propose to the Council 
to adopt a decision to suspend Cohesion Fund commitments.  

6 

OJ L 37, 6.2.2009, p. 5. 

EN 

4 

   EN 

                                                 
2012/0144 (NLE) 

Proposal for a 

COUNCIL IMPLEMENTING DECISION 

lifting the suspension of 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  1164/947,  and  in  particular  Article  4(2) 
thereof, 

Having regard to the proposal from the European Commission, 

Whereas: 

(1) 

(2) 

(3) 

7 
8 

9 
10 

Article 4 of Regulation (EC) No 1084/2006 sets out conditions applicable to Cohesion 
Fund assistance. According to Paragraph 1 of this article, the Council may decide to 
suspend either the totality or part of the commitments from the Fund for the Member 
State  concerned  with  effect  from  1  January  of  the  year  following  the  decision  to 
suspend if it has established in accordance with Article 126(8) TFEU that the Member 
State  concerned  has  not 
to  a  Council 
taken  effective  action 
recommendation made under Article 126(7) TFEU8.  

in  response 

On  5  July  2004,  by  Decision  2004/918/EC9  the  Council  decided  in  accordance  with 
Article  104(6)  of  the  Treaty  establishing  the  European  Community  (TEC)  that  an 
excessive deficit existed in Hungary. The Council adopted a first recommendation on 
5 July 2004, a second recommendation on 8 March 2005 and a third recommendation 
on 10 October 2006 addressed to Hungary in accordance with Article 104(7) TEC. On 
7 July 2009 the Council adopted its fourth recommendation to Hungary in accordance 
with Article 104(7) TEC ('Council Recommendation of 7 July 2009'), with a view to 
bringing  an  end  to  the  situation  of  an  excessive  government  deficit  by  2011  at  the 
latest.  

On 24 January 2012 the Council adopted Decision 2012/139/EU10 in accordance with 
Article  126(8)  TFEU,  establishing  that  Hungary  had  not  taken  effective  action  to 
correct the excessive government deficit in response to the Council Recommendation 
of 7 July 2009 within the period laid down therein.  

OJ L 210, 31.7.2006, p. 79. 
Replacing  Article  104  of  the  Treaty  establishing  the  European  Community  (TEC)  as  referred  to  in 
Article 4 of Regulation (EC) No 1084/2006. 
OJ L 389, 30.12.2004, p. 27. 
OJ L 66, 6.3.2012, p. 6. 

EN 

5 

   EN 

 
                                                 
(4) 

(5) 

(6) 

(7) 

On 13 March 2012, by Implementing Decision 2012/156/EU11, the Council decided to 
suspend part of the commitments from the Cohesion Fund with effect from 1 January 
2013 in accordance with Article 4 of Regulation (EC) No 1084/2006. The decision on 
the amount of Cohesion Fund commitments to be suspended aimed to ensure that the 
suspension was 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.  The  Council 
considered appropriate, in the 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  the  Cohesion  Fund  for  2013,  without  exceeding  the  maximum  level  of 
0.5%  of  the  nominal  GDP  of  the  Member  State  concerned  as  forecast  by  the 
Commission services. Accordingly, the Council decided to suspend EUR 495 184 000 
commitments from the Cohesion Fund for Hungary with effect from 1 January 2013.  

On  the  same  day,  the  Council  issued  a  revised  recommendation  to  Hungary  in 
accordance with Article 126(7) TFEU ('Council Recommendation of 13 March 2012'), 
setting 2012 as deadline for bringing the situation of an excessive government deficit 
to  an  end.  Specifically,  Hungary  was  recommended  to:  (i)  undertake  an  additional 
fiscal  effort  of  at  least  ½%  of  GDP,  based  on  the  further  specification  and 
implementation  of  consolidation  measures  of  a  structural  nature,  to  ensure  the 
attainment  of  the  2012  deficit  target  of  2.5%  of  GDP;  (ii)  allocate  possible  windfall 
gains for improving the headline balance; (iii) take necessary additional measures of a 
structural nature as needed  to  ensure that the deficit in  2013 remains  well  below the 
3%  of  GDP  threshold;  and  (iv)  incorporate  sufficient  reserve  provisions  in  the 
forthcoming budget laws. At the same time, the Council underlined that the budgetary 
adjustment  should  contribute  to  bringing  the  government  debt  ratio  onto  a  declining 
path  and  that  it  also  needed  to  be  supported  by  the  proposed  improvements  in  the 
fiscal governance framework. 

On  23  April  2012,  Hungary  submitted  the  annual  update  of  its  convergence 
programme outlining its budgetary strategy to ensure the sustainable correction of the 
excessive  deficit  by  the  2012  deadline.  The  official  deficit  targets  and  the  planned 
fiscal efforts comply with the Council Recommendation under Article 126(7) TFEU of 
13  March  2012.  The  programme  confirms  the  previous  medium-term  objective  of 
1.5% of GDP, which it plans to achieve by 2013. According to the update, the public 
debt  is  continuously  reduced  throughout  the  programme  period  to  77%  of  GDP  in 
2013  and  below  73%  of  GDP  in  2015.  As  regards  fiscal  governance  reform,  the 
authorities  announced  that  they  will  submit  to  the  Parliament  the  necessary 
amendments during the spring session. 

information, 

the  Commission  concluded 

Based  on  publicly  available 
its 
Communication  of  30  May  201212  that  Hungary  has  taken  the  necessary  corrective 
action, representing adequate progress towards the correction of the excessive deficit. 
In particular, the budget deficit is expected to reach 2.5% of GDP in 2012 and remain 
well below the 3% of GDP reference value in 2013, as recommended by the Council 
in  March.  Specifically,  taking  also  into  account  all  publicly  available  information 
provided  by  the  government  since  mid-March,  the  2013  deficit  is  foreseen  by  the 
Commission services to reach 2.7% of GDP. Considering also the effect of revisions 

in 

11 
12 

OJ L 78, 17.3.2012, p. 19. 
COM(2012) XXXLINK TO BE INSERTED HERE AFTER THE 30TH OF MAY 

EN 

6 

   EN 

                                                 
to potential GDP growth and the projected deviation from standard tax elasticities, the 
fiscal effort in 2012 can be considered to be broadly in line with what was required. 
The use of windfall revenues and the incorporation of sufficient reserve provisions in 
the forthcoming budgets will yet need to be demonstrated. Based on the Spring 2012 
forecast,  the  general  government  debt  is  expected  to  decrease  to  78.5%  of  GDP  in 
2012 and slightly further in 2013. Finally, some progress has been made on enhancing 
the  fiscal  governance  framework,  but  important  reforms  are  still  to  be  designed  and 
adopted before the end of the Spring session of Parliament. Against this background 
and  also  in  light  of  the  recent  worse-than-expected  first  quarter  growth  data,  the 
Commission will continue to closely monitor budgetary developments in Hungary. 

(8) 

(9) 

Overall, Hungary has taken the necessary corrective action in response to the Council 
Recommendation of 13 March 2012 to correct the excessive deficit by the deadline set 
by the Council. Therefore, Council Implementing Decision 2012/156/EU suspending 
part of the commitments from the Cohesion Fund should be abrogated. 

If at any moment in time, before the abrogation of the decision on the existence of an 
excessive  deficit  in  accordance  with  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) TFEU. It may, on a proposal by the Commission, 
adopt a decision to suspend Cohesion Fund commitments, 

HAS ADOPTED THIS DECISION: 

The  partial  suspension  of  commitments  from  the  Cohesion  Fund  for  Hungary  laid  down  in 
Council Implementing Decision No 2012/156/EU is hereby lifted. 

Article 1 

Article 2 

This Decision is addressed to Hungary. 

Done at Brussels,  

For the Council 
The President 

EN 

7 

   EN