EU Delays Decision on Hungary's Allegedly Illegal Reforms

Hungarian Prime Minister Viktor Orban smiles as he briefs the media after he met with President of the Hungarian National Bank, the central bank, Andras Simor (unseen) in his office in the Parliament building in Budapest, Hungary, 06 January 2012. EPA/BGN

The European Commission has delayed for another week a decision on whether to rebuke Hungary on potentially illegal reforms.

However, the Commission did warn on Wednesday that it "stands ready to make full use of its prerogatives" - including an infringement action.

"As guardian of the treaties, the commission remains preoccupied that a number of the new provisions may violate European Union law," the EU's executive said in a statement following its weekly meeting, as cited by DPA.

The statement refer to a raft of new laws and constitutional amendments that went into effect in Hungary on New Year's Day, which critics say consolidate state power on a range of matters - from finances to election law - too tightly into the president's office.

EU experts have yet to finalize legal assessments of the new laws, most notably a bill that could affect the independence of Hungary's central bank. The reviews should be completed "in the next days," the statement read.

"This will allow the college (of commissioners), based on a sound legal assessment, to take appropriate decisions at its next meeting on January 17," it added.

In the meantime, it called on Hungary to act on the EU concerns, noting that it would be "the swiftest way to lay to rest" the issue.

"We very much hope that Hungary itself will move to solve the problems, so we don't need to go through complicated, lengthy and, indeed, difficult infringement proceedings. The ball is in Hungary's court," EC spokeswoman Pia Ahrenkilde said.

The EU can bring countries found to be in breach of its laws before the European Court of Justice, which can impose hefty fines, while also rejecting suggestions that the commission's statement amounted to an "ultimatum."

"The commission has not the habit of operating through ultimata or other threats to any member state. Here we are setting out how we are going to proceed."

The EU has steadily upped the pressure on Budapest, ever since its parliament approved the reforms at the end of December. Concerns over the central bank law have led the EU and the International Monetary Fund (IMF) to delay the launch of official talks with Hungary over an aid package that the country has said it needs to remain solvent.

The uncertainty has pushed the Hungarian currency, the forint, down to record lows against the euro and sent the country's borrowing costs rocketing skywards.

The Hungarian minister in charge of negotiating the new financial assistance, Tamas Fellegi, was scheduled to meet with IMF chief Christine Lagarde on Wednesday in Washington. A meeting in Brussels with EU Economy Commissioner Olli Rehn is to follow on January 20.

The EU has also sounded the alarm about non-economic reforms, such as those dealing with mandatory early retirements for judges and the independence of the Hungarian data protection authority.

"The Commission stands ready to make full use of its prerogatives to ensure that member states respect the obligations they have accepted as members of the EU," it noted.

That also includes a budget deficit under the EU limit of 3 per cent of gross domestic product (GDP) - a requirement that the commission on Wednesday separately reprimanded Hungary on.

Budapest has fallen short of the prerequisite practically since joining the EU in 2004 and was scheduled to get its deficit back in line last year.

But the deficit-cutting measures it has applied are only temporary and thus "not sufficient to correct the deficit in a sustainable and credible manner," Rehn told reporters in Brussels.

Because it is not a member of the euro zone, Hungary does not face the threat of economic sanctions. But Rehn warned that its EU regional development funds could be suspended from 2013 if it fails to comply - the first time the bloc would make use of this penalty.

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