Commission recommends abrogation of EDP for five countries, including Hungary

The Commission has also recommended that the Council open an EDP for Malta.

Moreover, the Commission has adopted Recommendations to the Council with a view to extend the deadlines for correcting the excessive deficit in six countries: Spain, France, the Netherlands, Poland, Portugal and Slovenia.

In addition, the Commission has recommended that the Council decides that no effective action has been taken by Belgium to put an end to the excessive deficit and that the Council gives notice to Belgium to take measures to correct the excessive deficit.What is needed for an Excessive Deficit Procedure to be abrogated?

A decision on the abrogation of an Excessive Deficit Procedure (EDP) is based on a "durable correction" of the excessive deficit. This is deemed achieved if:

• (i) the notified data for the previous year (2012 in these cases) show a deficit below 3% of GDP; and
• (ii) the Commission services' forecast indicates that the deficit will not exceed the 3% of GDP reference value over the forecast horizon (currently 2013 and 2014)

In cases where the deficit remains close to the reference value and the debt level remains below 60% of GDP, the Commission will also take into account the net cost of the implementation of pension reforms involving the setup of a mandatory, fully funded second pillar. In particular, the Commission will take into account if the excess over the 3% threshold is fully explained by the net cost of the implementation of the pension reform.

In addition, according to the Commission's estimation, the cyclically-adjusted budget balance, net of one-off and other temporary measures, will stand at -0.75% and - 1.5% 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 measures 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.

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.How has Hungary achieved the lifting of the EDP?

The EDP for Hungary was launched in 2004. 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 0.75% of GDP.

The Hungarian 2013 Convergence Programme projects that the general government deficit will stay at 2.7% of GDP in both 2013 and 2014. However, the Commission services’ 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 Spring Forecast, the Hungarian government adopted further corrective measures amounting in gross terms to about 0.3% and 0.7% of GDP for 2013 and 2014, respectively.

“The Commission's updated fiscal assessment, which takes into account the impact 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," the EU executive said.