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EU ministers fail to address sanctions despite Hungary claim

EUROPE - The recent meeting of European Union finance ministers ended with no agreement on the treatment of countries with transitional excessive budget deficits arising from a pension reform.

Despite claims by Hungary’s finance minister, however, the question of sanctions for countries that dismantled their second pillar was never on the agenda.

The EU’s Belgian presidency had hoped to reach a compromise agreement whereby member states that had run up larger budget deficits - as a result of diverting some of their first-pillar pay-as-you-go state pension contributions toward the building out of a mandatory second pillar pension - should be treated more leniently under the 27-country bloc’s excessive deficit regulations.

This has been a demand of several central and east European countries, including Hungary and Poland, which were required to move to a three-pillar pension system as part of their preparations for EU membership.

Both countries have faced deficits above the EU’s 3% limit as a result of shortfalls in their state pension systems resulting from the diversion of contributions to the second pillar.

A spokesman for the European council, who asked not to be named, said there had been a consensus on the need for some degree of leniency, though few had been prepared to meet Hungarian and Polish demands that the entire state pension shortfall not count toward a country’s overall deficit.

György Matolcsy, Hungary’s national economy minister, told reporters after the meeting that Hungary had “won a battle” in the meeting, since measures sanctioning countries, like Hungary, that are seeking to move back to a substantially PAYG system had been postponed until next summer.

Hungary’s government is hoping for a windfall from mandatory pension fund members, who have been told that unless they hand their pension fund holdings to the government by the end of January, they will receive no state pension on retirement.

Matolcsy said any sanctions introduced next year would not affect Hungary, since they would not have retroactive effect.

The European Council said sanctions had not been on the agenda.

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