Hungary aid frozen by EU over budget deficit

Hungary's currency, the forint, has plunged in value as the country struggles with debts

The European Union has decided to suspend 495m euros ($655m; £417m) of funds due next year to Hungary, because of the country's budget deficit.

This is the first case of the EU taking action over the budget deficit of any of its members.

But the EU will allow three months for Hungary to pass more budget cuts.

The decision came as the EU also allowed Spain to run a higher deficit, leading Austria to accuse the EU of applying "double standards".

Spain will have to cut its deficit to 5.3% of GDP this year - higher than the 4.4% that Spain was originally told to target.

But the EU's monetary affairs commissioner Olli Rehn said that "different deadlines" meant direct comparisons of the Spanish and Hungarian cases were not valid, as Hungary had already been given an extension.

The EU's Excessive Deficit Procedure rules say EU member states should keep their budget deficits below 3% of national output (GDP) and government debts below, or sufficiently declining towards, 60% of GDP.

Hungary is forecast to run a deficit of 3% this year and 3.6% next year. Its total debt is 82% of its output.

Danish economy minister Margrethe Vestager said that the EU would reassess its decision on Hungary in June.

Hungary's neighbour, Austria, had wanted to postpone the decision to suspend funds because of worries that Hungary would not be able to get a IMF loan.

Vienna would have "preferred to give Hungary more time to adjust," said Austrian Finance Minister Maria Fekter.

Hungary had been in talks with the IMF and was given a 20bn-euro standby loan by the IMF in 2008 to prevent it having to default on its debts.

New Spain target

Spain was supposed to reduce its public deficit to 6% last year, but the most recent estimates put the 2011 deficit at 8.5%.

On Monday, eurozone finance ministers allowed Spain to run a deficit of 5.3% of GDP this year.

However, last week, Spain said that its deficit would be 5.8% in 2012, with Spanish Prime Minister Mariano Rajoy saying that this still represented "significant austerity".

The country has the highest jobless rate in the EU, with almost one in four people out of work.

Spain will have to bring its deficit back down beneath 3% by next year, the EU said.

Meanwhile, Greece was upgraded by Fitch Ratings on Tuesday, after its second bailout was approved by the eurozone and it managed to win a debt swap to reduce its debt by half.

The country's sovereign debt rating was upgraded four notches, to B- from being in restricted default.

A "B" rating indicates that the debt is highly speculative and that a "material credit risk" is still present.