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December 6, 2021

EU threatens action against Hungary over deficit

Germany’s economic recovery stalls, although the country still has a significantly higher growth than the rest of the eurozone.

BRUSSELS – Hungary has taken “no effective action” to contain its budget deficit, the European Commission has said. As a result, the commission will take the next step in its excessive deficit procedure against the country, the BBC reported.

The commission said Hungary’s deficit had only remained within the target 3% of GDP in 2011 thanks to one-off measures and expected the same in 2012.

International lenders are expected to demand tough conditions from Hungary this week in exchange for new loans. Analysts say Prime Minister Viktor Orban will have to give up some of his unconventional policies, which have included big taxes on banks and what amounts to a nationalisation of pension funds.

The nation received an IMF-led bailout in 2008, but Orban ended that deal, which had been agreed under the previous government, last year. However, since then the government’s total debt has risen to 82% of its output, while its currency, the forint, has fallen to record lows against the euro, leading to the country requesting “a new type of co-operation” with the IMF.

Meanwhile, CNN reported, quoting Financial Times, that Germany’s economic recovery went into reverse at the end of last year but the country still notched up 3 per cent growth in 2011 – twice as fast as in the US and the rest of the eurozone.

Highlighting the robustness of Europe’s largest economy – even as the eurozone debt crisis escalated — the Wiesbaden-based federal statistics office reported 2011 overall had seen only a modest slowdown from the 3.7 per cent growth seen in 2010, which was the fastest since the country’s reunification in 1990.

However, Wednesday’s figures did not dispel fears that even Germany was being hit by the eurozone crisis. The statistics office estimated German gross domestic product had fallen by about a quarter of a per cent in the fourth quarter. That increased the chances of German falling into recession – defined as two quarters of contracting activity.

Monti warns of angry response to austerity

And yesterday, Italian PM Mario Monti has warned of protests against the EU and Germany if his country’s painful economic and labour law reforms go unrecognized, the BBC said. Speaking before talks with German Chancellor Angela Merkel in Berlin, he said that there had been no EU concessions such as interest rate cuts. Without “tangible successes”, he predicted protests against Brussels, Germany and the European Central Bank.

Merkel said after the talks she had “great respect” for Italy’s reforms. “As for the speed and substance of these measures, I think they will strengthen Italy, will improve its economic prospects and we have watched with great respect how quickly they have been implemented,” she said at a joint news conference.

Monti, at the head of a government of unelected technocrats since November, followed two other important visitors to Berlin, French President Nicolas Sarkozy on Monday and IMF head Christine Lagarde on Tuesday. Lagarde has now travelled to Paris to meet Sarkozy.

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