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Hungary Facing Possible EU Sanctions Over Policies

  • Stefan Bos

Some 13 leading European firms have urged the European Union to impose sanctions on Hungary for what they view as a crackdown on foreign investors and anti-competitive measures. The letter comes amid mounting international concern about several policies of Hungary, which took over the EU's rotating presidency on New Year's Day.

These Hungarians celebrate their country's EU presidency during a New Year's party at Budapest's Millennium Park. It includes music and a light show beaming an image of one of Hungary's best known exports, the nerve-wracking Rubik's Cube puzzle.

Yet, foreign executives aren't celebrating. They are puzzled by the new tax policies introduced by Hungary's center right government.

More than a dozen multinationals have written to the European Commission to put pressure on Hungary to abandon plans to use selected industries, and foreign companies in particular, to balance the state budget.

Among those pushing for change are energy groups such as Germany's RWE and E.on, Austria's OMV, French insurance giant AXA, Germany's Deutsche Telekom, and Dutch financial groups ING and Aegon.

Marleen de Vries is executive director of the Netherlands-Hungarian Chamber of Commerce in Budapest. She tells VOA News that companies are especially angry about a crisis tax targeting banks, energy, telecommunications and retail companies.

She explains that the letter is focused on an extra crisis tax which is taken from many multinationals. De Vries makes clear that if this was not agreed when they began investing in Hungary, it is only logical that companies are upset. It's very interesting, she says, to see that Hungary, which is taking over the European Union presidency, is now introducing domestic policies that are not always welcomed by the international community."

Communications giant Deutsche Telekom reportedly already paid over $130 million in extra taxes through its Hungarian subsidiary Magyar Telekom last year.

Additionally, companies are concerned about government plans to seize up to $14 billion in private pension assets to cut the budget deficit while avoiding austerity measures.

The ruling Fidesz party is also demanding control over key financial institutions such as the State Audit Office and Central Bank.

Yet Hungarian Prime Minister Viktor Orban has defended his actions at a time when the country is facing a major economic crisis. He says, no matter which European leaders he meets, he tells them that for those companies that operate in Hungary, we will cry together and we will laugh together. Mr. Orban adds that the fate of large companies operating in the country must be connected to the fate of Hungary.

Mr. Orban says Brussels has no right to interfere. Not everyone agrees. Spokesman Olivier Bailly has confirmed that the European Commission is looking into the companies' complaint and he is not ruling out sanctions.

He says the European Commission has no problems with the fiscal or budget choices made by member states in their efforts to re-balance their budgetary situation. In community legislation however "there is a principal of equality." Bailly explains that it is not possible to tax the operators of one sector more than others. There can not be discrimination between operators, he says.

He adds that the European Commission has started proceedings for similar reasons against other countries including Spain and France.

Sanctions can include financial penalties and the freezing of EU funds for Hungary.

There have also been calls among European officials to strip Hungary of its voting rights within the Union. At the same time, Hungarian journalists say it will be difficult for them to report on these controversies.

On New Year's Day Hungary introduced what critics describe as Europe's most restrictive media law.

A government appointed media council can fine broadcasters nearly $1 million and newspapers and news websites over $100,000 if their coverage is deemed unbalanced, or immoral.