EU caught in 'double standards' charge over budget rules

(BRUSSELS) - The European Union risked accusations of applying double standards on budget rules on Tuesday, with Hungary facing financial penalties but after Spain obtained a concession on its public deficit.

The government in Budapest was braced for a decision at EU finance ministers' talks in Brussels which would result in nearly 500 million euros' worth of EU grants next year being frozen over problems in the accounts for Hungarian public spending last year.

The looming decision followed a recommendation by Brussels watchdogs that Hungary be deprived of that income unless corrections were made.

But talks between eurozone-only ministers late on Monday gave the Spanish government extra space to cut its overshooting public deficit.

Spain has the fourth-biggest economy in the European Union but is in deep recession with high unemployment following a property crash.

"We did not deploy sanctions directly on Spain," said Austrian Finance Minister Maria Fekter, who had urged partners on Monday to take a "severe" stance on Spain's demand for wriggle-room.

"Given the pressure on Hungary, I have the impression that there are double standards" at play, she underlined, adding that Vienna "would have preferred to give Hungary more time to adjust.

Europe "has to make sure that the rules we gave ourselves will be followed" and that "we have to treat all states the same way," she said.

That meant offering Hungary time before taking "the final decision about sanctions at the beginning of the summer."

The EU, shaken by the Greek debt crisis, has made clear in the past year that it intends to tighten laws and procedures to discipline public finances.

The European Commission denied double standards were at work.

Hungary is not in the eurozone, and its deadline to return within the EU's longstanding ceiling for an annual public deficit -- 3.0 percent of gross domestic product -- is 2012, whereas Spain has to meet that target in 2013.

The EU's executive said last month that governments should allow it to freeze 495 million euros ($650 million) in routine EU grants next year unless the Hungarian government took credible steps to put public finances on a sound footing.

EU diplomats said that the "two-step" approach sought by Fekter had gained favour overnight after Spain obtained a major concession from the eurozone in the form of more room for manoeuvre in applying austerity. The country has been enacting measures to correct its finances for two years.

One said the emphasis "will now be on a six-month timetable for actions to avoid" the fine.

A spokesman for the Hungarian EU representation stressed: "The window is there anyway -- even if recommendations are adopted today, we would (still) have six months, but really until end of this year to 'convince'."

The Spanish government, in a context of renewed if mild recession in the eurozone as a whole, obtained the substantial concession on the rate of budget consolidation after EU officials had warned that there would be no negotiation.

Spain was originally meant to bring its deficit down to 4.4 percent of GDP in 2012, but finance ministers agreed to allow Spain to target 5.3 percent of GDP instead, a target Madrid said at the talks it will work towards.

Spain was supposed to reduce its public deficit to 6.0 percent of gross domestic product last year but the most recent estimate puts the 2011 deficit at 8.5 percent of GDP, equivalent to about 90 billion euros ($120 billion).

That about matches the amounts of the bailouts for Portugal or Ireland.

Sony Kapoor, who heads the Re-Define economic consultancy, warned that the Spanish "test case" for EU oversight of national budgets would likely "be replayed across a growing number of euro area member states."