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In a First, Europeans Act to Suspend Aid to Hungary Unless It Cuts Deficit

The finance ministers Wolfgang Schäuble, of Germany; Margrethe Vestager, of Denmark; and Jutta Urpilainen, of Finland, at their meeting Tuesday in Brussels.Credit...Jock Fistick/Bloomberg News

BRUSSELS — European Union finance ministers agreed Tuesday for the first time to punish one of their members for flouting the bloc’s budget rules, deciding to suspend payment to Hungary of nearly 500 million euros in development money next year unless it makes progress on reducing its deficit.

The move showed a new determination to enforce discipline after the failure to do so over the last decade was a factor in several debt crises that began with Greece and threatened to undermine the euro.

“It’s a very important decision taken today as a signal to every member country that we are going to implement and follow the rules that we have decided,” said Margrethe Vestager, the economy minister of Denmark, which holds the European Union’s rotating presidency.

“This is a first decision, but more may follow,” Ms. Vestager said at a news conference after the meeting.

Even so, the ministers left themselves an escape, agreeing to review the decision in June, underscoring the continuing political difficulties of taking tough and decisive action in Europe.

Several countries, including Austria, Britain and Poland, had sought to delay the decision until September, wary of the dangers of pushing weak countries to improve their finances during a recession.

It was an afternoon of “political skirmishes in the Council by some to shield Hungary,” according to one diplomat, who spoke on the condition of anonymity because he was not authorized to discuss what had happened in the private meeting. The Council refers to the building where European ministers meet in Brussels.

As a result of the heavy lobbying, the ministers agreed to review their decision on June 22 and to drop the plan to suspend the development money, the equivalent of $654 million, if Budapest has made adequate progress on its deficit.

Hungary has to show by the June deadline “an additional fiscal effort to meet a deficit target” of 2.5 percent of gross domestic product in 2012 and “additional structural measures” to ensure that the deficit in 2013 remains well below 3 percent of gross domestic product, a statement by the ministers said.

“As soon as Hungary meets its obligations, we have an automatic procedure to reverse the decision,” said Wolfgang Schäuble, the German finance minister.

The Hungarian economy minister, Gyorgy Matolcsy, called the decision a “reasonable solution” and said his government was “100 percent” confident of meeting the June 22 deadline.

But some commentators said it remained unclear whether Hungary could do so. “The government has still not come up with a program that would point toward keeping the deficit low on the long term,” said Attila Juhasz, an analyst at Political Capital Institute, a research organization in Budapest.

The government of Prime Minister Viktor Orban still must carry out critical measures and modify some laws for Hungary to receive a sorely needed line of credit from the International Monetary Fund and the European Union, Mr. Juhasz said. Budapest’s strategy “is very risky, as Brussels might run out of patience,” he said.

The decision against Hungary alarmed some ministers, who have protested that Spain was given more favorable treatment just the day before with a chance to accelerate efforts to correct its budget deficit without the prospect of punishment.

“I want to make the critical observation that we would have preferred to give Hungary some time to fall into line, namely by offering a two-step process that makes a final decision on sanctions at the start of the summer,” Maria Fekter, the Austrian finance minister, said.

“Yesterday we had a similar debate about Spain, and we didn’t immediately impose sanctions but gave them a chance to have a more ambitious budget for 2012,” Ms. Fekter said. “Looking at the pressure put on Hungary, I feel as if we are measuring with different measures.”

The fragility of the Hungarian economy was brought into sharp focus earlier in the day by the Organization for Economic Cooperation and Development, a group of developed countries. It predicted that Hungary, a nation with a population of 10 million, would slide into recession this year.

Sensibilities over Hungary have been amplified by a broader showdown between the European authorities and Budapest over Mr. Orban’s moves to increase his power over the central bank, the judiciary and the data protection authority.

That has prompted concerns that Hungary — a relative newcomer to the European Union compared with Spain — was waning in its commitment to democratic principles.

Economics specialists said European ministers had little choice but to seek ways to make it easier for Spain to meet its target, given the weak prospects for growth in Europe and the difficulties of imposing centralized economic decision-making in a bloc of 27 countries.

“The decision to take a somewhat tougher line with Hungary, by threatening to suspend cohesion funds, is not a case of double standards,” said Simon Tilford, the chief economist at the Center for European Reform in London. “The Spanish have not been guilty of mismanaging their economy, whereas that can hardly be said of Hungary.”

Mr. Tilford added, “Fiscal austerity of the order originally required by the E.U. would have simply pushed the Spanish economy into a slump.”

The European Commission, the European Union’s executive branch, made the original recommendation to suspend the aid, saying Hungary had already missed important deadlines.

“We are not lenient, and we are not specially tough with one member state or another,” said Amadeu Altafaj Tardio, a spokesman for Olli Rehn, the European commissioner for economic and monetary affairs.

“There is no room to be seen as a victim of the system,” Mr. Altafaj Tardio said of Hungary.

Palko Karasz contributed reporting from Budapest.

A version of this article appears in print on  , Section B, Page 3 of the New York edition with the headline: In a First, Europeans Act to Suspend Aid to Hungary Unless It Cuts Deficit. Order Reprints | Today’s Paper | Subscribe

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