Hungary posts single-digit budget gap in 2006, remains black sheep in EU

Hungary's massive deficit is followed by a 4.4% of GDP gap produced by Italy. The runner-ups are Poland (-3.9%), Portugal (-3.9%) and Slovakia (-3.4%).

It is noteworthy that there are only five states of the 27-member block that fail to meet the 3% of GDP Maastricht deficit criterion. Slovakia, however, is almost certain to step out of this circle this year. I also reflects the improving fiscal position that last year was the first in a long time when the government debt to GDP ratio dropped in both the euro zone and the EU-27.

In the euro area the government debt to GDP ratio fell to 69.0% at the end of 2006 from 70.5% at the end of 2005, and in the EU-27 to 61.7% from 62.9%.

In 2006, the government deficit of both the euro area (EA13) and the EU27 fell compared to 2005, while the government debt1 increased in absolute terms. In the euro area the government deficit decreased to 1.6% of GDP in 2006 from 2.5% in 2005, and in the EU27 it fell to 1.7% from 2.4%.

It is also a spectacular phenomenon that more prosperous (more competitive) economies all boast stable public finances. This indicates that a small budget gap spurs the performance of the economy.

European Parliament, which has apparently had enough of extra large budget deficits in individual member states, is proposing setting up national rules to achieve by the countries' own constitutions and other laws what the Stability and Growth Pact could not. It is intolerable that member states completely ignore the “budget bible", i.e. the regulations of the Stability and Growth Pact, Hungarian broadsheet Népszabadság has quoted a document to be addressed by the EP on Wednesday.

The text reminds that the EU demands from member states to keep their budget deficit below 3% of GDP, which they regularly ignore. The harsh tone of the document is surprising, considering that Joaquín Almunia, European Commissioner for Economic and Monetary Affairs, has recently voiced his optimistic look into the future, expecting the number of countries not complying with the 3% budget ceiling dropping, which the current data have underpinned.

However, he has also recently warned member states not to repeat the mistakes of the 90s, and spend budget revenues stemming from growth on the reduction of their budget gaps.

Euro zone finance ministers agreed at an informal meeting over the weekend that every single member state must generate budget surplus by 2010. It is questionable, however, whether this kind of agreement will be enough for euro zone countries to pursue a disciplined economic policy. A similar document by the EP would not force member states to do anything in this sense, either.

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