EU says Hungary won’t suffer after EU, IMF break off bailout talks over lackluster budget cuts

EU: Hungary won’t suffer from halt in loan talks

BRUSSELS — There will be “no direct, immediate consequences” for Hungary after the EU and the International Monetary Fund suspended talks on the country’s bailout package and called for bigger spending cuts, the EU executive said Monday.

Hungary must meet strict targets to reduce debt in return for a euro20 billion ($26 billion) loan from the European Union, the IMF and the World Bank.

European Commission and IMF officials said in a Saturday statement that they had “a number of open questions” about the government’s spending plans for next year.

EU spokesman Ton van Lierop said Monday that there was no deadline to resume talks with Hungary on the loan and that he did not expect that their decision would have any immediate effect on the country.

The EU’s economy commissioner Olli Rehn called at the weekend for Hungary to make “tough decisions, notably on spending” to slash its deficit, the yearly gap between how much a government receives and spends.

Hungary aims to bring the deficit down to 3.8 percent of gross domestic product this year and under 3 percent — a limit set by EU budget rules — by next year.

The government has strongly denied comments by officials that the deficit could reach 7.5 percent of GDP and is close to defaulting on its debt.

The EU also asked Hungary to review a two-year temporary levy on banks aimed at raising some 200 billion forint ($916 million.) The EU said it could backfire and cause “a significantly negative impact on the country’s investment climate and economic growth.”

It also called on Hungary to respect its central bank’s independence, push through delayed reforms to transport and health spending and to review several draft laws that “are considered to be distortive and potentially not in compliance with EU law.”

Despite the news from Hungary — and a credit rating downgrade of Ireland by Moody’s agency on Monday — investors did not seem to worry that Europe’s debt crisis would worsen. The 16-nation currency bought $1.2962 in Monday morning European trading, up from $1.2947 in New York late Friday.