The European Commission has decided to withhold development funds for Hungary in a bid to make the country comply with the European Union's deficit rules. Budapest has frequently failed to meet requirements.
The European Commission on Wednesday ordered the suspension of 495 million euros ($656 million) in development funds for Hungary over the country's repeated failure to bring its budget deficit in line with the bloc's requirements.
The move of the European Union's executive arm will now have to be endorsed by the bloc's other 26 member states.
It's the first time that the European Union proposes to impose the penalty of suspending access to the bloc's Cohesion Fund - an instrument to provide resources to poorer nations for infrastructure projects.
EU Economy Commissioner Olli Rehn said in a statement in Brussels that such a suspension would apply as of January 2013.
Rehn described Hungary's deficit-cutting measures as only temporary. "They are not sufficient to correct the deficit in a sustainable and credible manner," Rehn argued.
Budapest had been mandated to bring its deficit below the required three percent of GDP by this year. But Hungary has almost always violated the bloc's deficit rules since it joined the EU in 2004 - apart from last year when a one-off transfer of private pension funds to the state eased Hungary's budget woes.
Tougher fiscal discipline rules within the EU now allow the European Commission to apply more drastic measures to make member states comply with requirements.
But Hungary is not a eurozone country, meaning that it cannot be subjected to further economic sanctions.
The planned withholding of development funds adds another bone of contention to relations between Budapest and Brussels with the two already at loggerheads over concerns that Hungary's new constitution restricts civil liberties.
hg/ai (AP, dpa)