Spain has to save an additional €5bn on its budget this year, while Hungary has been told it stands to lose €500m in EU funds if it does not get its budget back on track over the next three to six months.
The tough decisions by EU finance ministers were hailed as a victory for strict new national budget rules just agreed by the member states, despite a battle to ease the pressure on both countries.
Spain, whose deficit overshot its target last year, is forecast to do the same this year from the original target of 4.4%. They had hoped to be allowed to extend the deficit to 5.8%, but were told to take another €5bn off its spending to ensure the deficit is no more than 5.3%.
This will be in addition to €15bn in cuts as part of the budget to be announced later this month.
The new government blame overspending by regional governments for much of the overrun.
Spain must still cut deficit next year to 3% of GDP — a feat described as “some high jump” by Michael Noonan, the finance minister, when he said he sympathised with his Spanish counterpart trying to make that level of adjustment in just one year.
The additional cuts risk putting the Spanish economy into an even greater recession and increasing the unemployment numbers — the highest in the EU.
The ministers took a vote when it came to deciding the action on Hungary when a spirited fight was put up by Austria, Poland, the Czech Republic, Britain and Sweden on behalf of the country that failed to take action demanded by the European Commission some months ago.
Claims that double standards were being operated and that the member states were willing to break their own rules, even before the Fiscal Treaty has been enforced were denied.
Mr Noonan said there was no softening on attitudes towards the countries, as did economics commissioner Olli Rehn, who denied they had been more lenient with Hungary.
He said that in June the Commission will give its view if the measures adopted by Hungary are sufficient.
His spokesperson Amadeu Altafaj Tardio said that the Commission recommended action against five countries earlier this year, but Hungary was the only one that had failed to comply and adjust its budget.
The ministers decide that they would conclude agreement on reinforcing the European financial firewall by the end of this month. Germany is suggesting that the EFSF with €250bn left after funding Ireland and Portugal’s bailout should continue to run to its final date of 2013 and that the new permanent ESM fund of €500bn should come into force as decided in July.
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