Hungary became the first European Union member to be slapped with a financial sanction for missing Brussels-mandated deficit targets.

EU finance ministers on Tuesday agreed to suspend €495m in development funds after Budapest failed to live up to demands to shrink its budget gap.

The decision came only after a heated debate among finance ministers in Brussels, with a group of mostly fellow non-eurozone countries – including the UK, Poland and Sweden – questioning the size and speed of the penalty, which would come into effect on January 1.

The dissenters were able to get Hungary a slight reprieve; Budapest will be able to have the sanction lifted in June if it meets EU demands to cut another 0.5 per cent from its budget, which the European Commission believes will enable Budapest to hit an agreed deficit target of 2.5 per cent of economic output.

“This provides a strong incentive for Hungary to conduct sound and sustainable fiscal policy,” said Olli Rehn, the EU’s top economic official.

Mr Rehn acknowledged that the process had become politicised, but said he did not believe it would undermine the EU’s tough new fiscal discipline regime since rules for eurozone countries are less susceptible to political interference.

Still, some advocates of the new system found Tuesday’s debate troubling, since Hungary was able to rally allies from a wide array of countries, including Austria, where banks are highly exposed to Hungary’s faltering economy, in an effort to delay the sanctions for several months.

“This was the first test,” said an EU diplomat. “We passed it, but it was dangerous.”

Although the effort to delay sanctions failed, Gyorgy Matolcsy, Hungary’s economy minister, said the support justified Budapest’s effort to fight Mr Rehn’s decision to impose sanctions while other countries, including Spain, have been able to avoid similar penalties.

“Never before have so many countries stood by us as now,” Mr Matolcsy said. “The double standard used against Hungary has been revoked.”

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