Recommendation for a COUNCIL DECISION abrogating Decision 2004/918/EC on the existence of an excessive deficit in Hungary
Date: 2013-05-29
Institutions: European Commission
Subjects: Hungary, budget deficit, budgetary equilibrium, economic statistics, gross domestic product, public expenditure, stability pact, tax reform

EUROPEAN 
COMMISSION 

Brussels, 29.5.2013  
COM(2013) 388 final 

Recommendation for a 

COUNCIL DECISION 

abrogating Decision 2004/918/EC on the existence of an excessive deficit in Hungary 

{SWD(2013) 388 final} 

EN 

   EN 

 
 
 
  
 
Recommendation for a 

COUNCIL DECISION 

abrogating Decision 2004/918/EC on the existence of an excessive deficit in Hungary 

THE COUNCIL OF THE EUROPEAN UNION, 

Having  regard  to  the  Treaty  on  the  Functioning  of  the  European  Union,  and  in  particular 
Article 126(12) thereof, 

Having regard to the recommendation from the Commission, 

Whereas:  

(1) 

(2) 

(3) 

1 

The  Council  has  decided  on  5  July  2004,  in  accordance  with  Article  104(6)  of  the 
Treaty establishing the European Community (TEC), that an excessive deficit exists in 
Hungary  and  adopted  a  recommendation  under  Article  104(7)  TEC  with  a  view  to 
bringing the excessive deficit situation to an end by 20081. 

On 18 January 2005, in accordance with Article 104(8) TEC, the Council considered 
that  Hungary  had  not  taken  effective  action  in  response  to  its  recommendation  and 
issued  another  recommendation  based  on  Article  104(7)  TEC  on  8  March  2005, 
confirming  the  2008  deadline  for  the  correction  of  the  excessive  deficit.  On  8 
November 2005, the Council decided that Hungary had for the second time failed to 
comply  with  the  recommendations  under  Article  104(7)  TEC.  Accordingly,  it 
addressed  a  third  recommendation  under  Article  104(7)  TEC  to  Hungary  on  10 
October  2006,  postponing  the  deadline  for  the  correction  of  the  excessive  deficit  to 
2009. On 7 July 2009 the Council concluded that the Hungarian authorities could be 
considered  to  have  taken  effective  action  in  response  to  the  recommendation  from 
October 2006 and, against the background of the severe economic downturn, issued a 
revised recommendation under Article 104(7) TEC, setting once more a new deadline 
for correction, i.e. 2011. On 27 January 2010 the Commission concluded that Hungary 
had  taken  effective  action  in  response  to  the  latest  Council  recommendations,  with 
which the Council concurred in its conclusions on 16 February 2010, but alerted about 
considerable risks.  

According  to  the  provisions  of  Article  126(8)  TFEU,  the  Council  decided  on  24 
January 2012 that Hungary had not taken effective action in response to the July 2009 
Council recommendation within the period laid down in this recommendation. While 

All documents related to the excessive deficit procedure of Hungary can be found at: 
http://ec.europa.eu/economy_finance/economic_governance/sgp/deficit/countries/hungary_en.htm 

EN 

2 

   EN 

 
 
                                                 
 
the 3% of GDP Treaty reference value was not breached in 2011, this was not based 
on  a  structural  and  sustainable  correction  and  hinged  upon  substantial  one-off 
revenues. This was accompanied by an estimated cumulative structural deterioration of 
over  2%  of  GDP  in  2010  and  2011  compared  to  a  recommended  cumulative  fiscal 
improvement  of  0.5%  of  GDP.  Moreover,  while  the  authorities  were  implementing 
structural  measures  in  2012,  which  were  expected  to  largely  offset  the  previous 
deterioration, the 3% of GDP Treaty reference value would again be respected in 2012 
only  thanks  to  one-off  measures  of  close  to  1%  of  GDP  and  would  be  breached  in 
2013.  

On  13  March  2012,  the  Council  adopted  a  new  recommendation  in  accordance  with 
Article 126(7) TFEU for Hungary to bring the excessive deficit to an end by 2012. The 
Hungarian authorities were asked to undertake the following steps in particular: (i) to 
put  an  end  to  the  excessive  deficit  situation  by  2012  in  a  credible  and  sustainable 
manner; (ii) to undertake an additional fiscal effort of at least ½% of GDP to ensure 
the  attainment  of  the  2012  deficit  target  of  2.5%  of  GDP;  and  (iii)  to  take  the 
necessary additional measures of a structural nature to ensure that the deficit in 2013 
remains well below the 3% of GDP threshold. At the same time, the government debt 
ratio was recommended to be brought back on a declining path as soon as possible so 
that  it  represents  sufficient  progress  towards  compliance  with  the  debt  reduction 
benchmark.  The  budgetary  adjustment  also  needed  to  be  supported  by  the  proposed 
improvements  in  the  fiscal  governance  framework.  The  Council  established  the 
deadline of 13 September 2012 for the Hungarian government to take effective action. 
Also on 13 March 2012, the Council decided to suspend a part of the Cohesion Fund 
commitment  appropriations  for  the  year  2013  for  Hungary  (in  line  with  Article  4  of 
Council Regulation (EC) No 1084/2006). 

On 30 May 2012, based on the 2012 convergence programme and further specification 
of the savings measures, the Commission concluded that Hungary had taken effective 
action  regarding  the  correction  of  the  excessive  deficit.  In  particular,  the  general 
government  deficit  was  expected  to  reach  2.5%  of  GDP  in  2012  and  remained  well 
below the 3% of GDP Treaty reference value in 2013 as recommended by the Council 
in  March.  Moreover,  it  was  acknowledged  that  some  progress  had  been  made  on 
enhancing the fiscal governance framework even though in this area overall progress 
could have been considered slow. Against this background, the Commission adopted 
on  30  May  a  proposal  for  lifting  the  suspension  of  the  Cohesion  Fund  commitment 
appropriations.  On  22  June  2012  the  Council  concurred  with  this  assessment  and 
adopted  a  decision  lifting  the  suspension  of  the  Cohesion  Fund  commitment 
appropriations.  

In  accordance  with  Article  4  of  the  Protocol  on  the  excessive  deficit  procedure 
annexed to the Treaties, the Commission provides the data for the implementation of 
the  procedure.  As  part  of  the  application  of  this  Protocol,  Member  States  have  to 
notify  data  on  government  deficits  and  debt  and  other  associated  variables  twice  a 
year,  namely  before  1  April  and  1  October,  in  accordance  with  Article  3  of  Council 
Regulation (EC) No 479/2009 of 25 May 2009 on the application of the Protocol on 
the  excessive  deficit  procedure  annexed  to  the  Treaty  establishing  the  European 
Community2.  

(4) 

(5) 

(6) 

2 

OJ L 145, 10.6.2009, p. 1.  

EN 

3 

   EN 

                                                 
(7)  When considering whether a decision on the existence of an excessive deficit should 
be  abrogated,  the  Council  should  take  a  decision  on  the  basis  of  notified  data. 
Moreover, a decision on the existence of an excessive deficit should be abrogated only 
if  the  Commission  forecasts  indicate  that the  deficit  will  not  exceed  the  3%  of  GDP 
Treaty reference value over the forecast horizon3. 

(8) 

Based on data provided by the Commission (Eurostat) in accordance with Article 14 
of Regulation (EC) No 479/2009 following the notification by Hungary before 1 April 
2013,  the  Commission  2013  Spring  Forecast  and  the  assessment  of  additional 
corrective measures adopted on 13 May 2013 in a government decree, the following 
conclusions are warranted: 

– 

In  2012,  on  the  basis  of  a  considerable  fiscal  effort,  the  general  government 
deficit  reached  1.9%  of  GDP.  This  was  also  thanks  to  one-off  revenues 
amounting  to  ¾%  of  GDP,  including  the  higher  than  budgeted  one-off 
revenues of 0.2% of GDP related to further transfer of assets from the private 
to the public pension pillar. The adopted 2012 budget targeted a deficit of 2.5% 
of GDP on the basis of a 0.5% growth. The budget contained an extraordinary 
reserve of 1.1% of GDP and numerous consolidation measures, most notably: 
(i)  revenue-increasing  measures  of  around  1¾%  of  GDP,  including  hikes  in 
indirect taxes and social security contributions; (ii) structural measures on the 
expenditure side of ¾% of GDP, such as a review of social benefits; and (iii) 
expenditure  constraints  of  ¼%  of  GDP  in  the  public  sector,  including  a 
nominal wage freeze in most sectors. In order to counterbalance the constantly 
deteriorating  growth  outlook,  the  government  adopted  two  main  additional 
corrective packages in April and October (totalling 0.7% of GDP), comprising 
mainly further cuts in the appropriations of the budgetary institutions, of which 
around half was implemented. In addition, the balance of the local government 
sector  improved  by  around  0.7%  of  GDP  compared  to  the  budgeted  plans, 
mainly due to their low investment activity. In the context of the October 2012 
EDP Progress Report, the official 2012 deficit target was revised upwards from 
2.5% to 2.7% of GDP. Overall, effectively implemented corrective measures of 
around 3% of GDP adopted by the central government and the improvement of 
the local government sector's balance eventually resulted in a deficit of 1.9% of 
GDP,  i.e.  an  overachievement  of  the  original  deficit  target  by  0.6%  of  GDP. 
The  activation  of  the  budgeted  extraordinary  reserves  counterbalanced  the 
budgetary  slippages,  partly  related  to  the  worse  than  earlier  expected 
macroeconomic environment. 

– 

The Hungarian 2013 convergence programme projects the general government 
deficit  to  stay  at  2.7%  of  GDP  in  both  2013  and  2014.  However,  the 
Commission 2013 Spring Forecast foresees a deficit of 3.0% of GDP in 2013 
and  3.3%  of  GDP  in  2014,  which  suggests  that  the  excessive  deficit  has  not 
been  brought  to  an  end  in  a  durable  way.  On  13  May  2013,  following  the 
release  of  the  Commission  2013  Spring  Forecast,  the  Hungarian  government 
adopted  further  corrective  measures  amounting  in  gross  terms  to  about  0.3% 

3 

In line with the “Specifications on the implementation of the Stability and Growth Pact and Guidelines 
on the format and content of Stability and Convergence Programmes”, as agreed by the Economic and 
Financial Committee on 3 September 2012. See: 
http://ec.europa.eu/economy_finance/economic_governance/sgp/pdf/coc/code_of_conduct_en.pdf  

EN 

4 

   EN 

                                                 
 
and 0.7% of GDP for 2013 and 2014, respectively. The Commission's updated 
fiscal assessment, which takes into account the net deficit improving effect of 
these  additional  corrective  measures,  projects  a  deficit  of  2.7%  and  2.9%  in 
2013 and 2014, respectively. Thus, the deficit is expected to remain below the 
Treaty  reference  value  of  3%  of  GDP  over  the  forecast  horizon.  In  addition, 
according  to  the  Commission's  estimation,  the  cyclically-adjusted  budget 
balance, net of one-off and other temporary measures, will stand at -¾% and -
1½%  of  GDP  in  2013  and  2014,  and  hence  will  be  consistent  with  the 
Hungarian medium-term objective of -1.7% of GDP.  

– 

The  debt-to-GDP  ratio  was  reduced  from  a  peak  of  close  to  82%  in  2010  to 
79.2%  in  2012,  thanks  to  substantial  one-off  capital  transfers  linked  to  the 
abolition of the mandatory private pension pillar and a number of consolidation 
measures.  According  to  the  2013  convergence  programme,  the  debt-to-GDP 
ratio  will  continue  to  decline,  falling  to  78.1%  and  77.2%  in  2013  and  2014, 
respectively,  and  remaining  on  a  downward  path  thereafter.  Even  after 
incorporating  the  impact  of  the  new  consolidation  measurres  adopted  on  13 
May  2013,  the  Commission  forecasts  a  higher  trajectory  for  the  debt-to-GDP 
ratio by around 1 pp for both 2013 and 2014. 

(9) 

As  to  fiscal  governance,  the  Council  asked  the  Hungarian  authorities  to  establish  a 
truly binding medium-term framework and broaden the analytical remit of the Fiscal 
Council  in  view  of  its  veto  right  over  the  annual  budget.  The  2013  convergence 
programme  announces  the  intention  to  move  forward  in  this  area  in  autumn  2013. 
Progress  will  continue  to  be  closely  monitored  in  the  context  of  the  European 
Semester. 

(10)  The Council recalls that, starting from 2013, which is the year following the correction 
of  the  excessive  deficit,  Hungary  should  maintain  a  fiscal  stance  in  line  with  its 
medium-term  objective,  including  respecting  the  expenditure  benchmark,  and  make 
sufficient  progress  towards  compliance  with  the  debt  criterion  in  accordance  with 
Article  2(1a)  of  Council  Regulation  (EC)  1467/97  of  July  1997  on  speeding  up  and 
clarifying the implementation of the excessive deficit procedure.4 

(11) 

In accordance with Article 126(12) of the Treaty, a Council Decision on the existence 
of  an  excessive  deficit  is  to  be  abrogated  when  the  excessive  deficit  in  the  Member 
State concerned has, in the view of the Council, been corrected.  

(12) 

In  the  view  of  the  Council,  the  excessive  deficit  in  Hungary  has  been  corrected  and 
Decision 2004/918/EC should therefore be abrogated, 

HAS ADOPTED THIS DECISION: 

From an overall assessment it follows that the excessive deficit situation in Hungary has been 
corrected. 

Article 1 

4 

OJ L 209, 2.8.1997, p. 6. 

EN 

5 

   EN 

                                                 
Decision 2004/918/EC is hereby abrogated. 

Article 2 

Article 3 

This Decision is addressed to Hungary. 

Done at Brussels,  

For the Council 
The President 

EN 

6 

   EN