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EU Presses Hungary to Make Further Spending Cuts

A dealer stands in the trading room of investment house BudaCash after bonds plunged further in a deepening crisis due to the government's widely-criticized policy course, in Budapest, Hungary, January 5, 2012.

The European Union is heightening its pressure on Hungary for reforms, saying that it has failed to effectively control its budget deficit and that its new constitution may be unlawful.

EU economy minister Olli Rehn said Wednesday that the Budapest government has failed to permanently keep its deficit spending below the EU-mandated level of 3 percent of the country's economic output.

"It is on an unsustainable path and will reach about 3 percent next year and thus again breach the reference value of the treaty. This is why we have concluded that Hungary has not taken effective action in response to the council recommendations," said Rehn.

Rehn said the EU could withhold development funds for Hungary if it does not curtail its spending.

Meanwhile, the EU also said it is nearing completion of a review to determine whether Hungary's new constitution violates EU standards by curtailing the independence of the country's judges, the central bank and its data protection agency. Some critics say the constitutional changes pushed through by Prime Minister Viktor Orban's parliamentary majority in December could return the one-time Soviet-bloc country to an authoritarian state.

Hungary is seeking a bailout of up to $25 billion from the EU and International Monetary Union, but talks were suspended over the assistance after the central bank provisions were approved.

Meanwhile, even Germany, Europe's economic powerhouse, said it is not immune from the effects of the continent's slowing economy and the effects of the two-year governmental debt crisis. Germany said Wednesday its economy shrunk by a quarter of a percentage point in the last three months of 2011.

Some information for this report was provided by AP and AFP.