March 10 (Bloomberg) -- Hungary and Latvia, the two European Union members that needed international bailouts to avert defaults, must take more steps to meet their deficit targets, EU finance ministers said.

Hungary’s government needs to maintain “adequate” buffers and “take the necessary measures” to ensure that the budget deficit stays within 3 percent of gross domestic product, the EU’s ceiling, the ministers said in a report approved at a meeting in Brussels today. Latvia must “rigorously” implement wage cuts and implement other measures to achieve the deficit target of 5.3 percent of GDP this year, the ministers said.

The global financial crisis is taking its toll on emerging Europe by cutting access to credit and investment. While western governments are boosting spending to fight the recession, East Europe is urged to cut back as high external debt increases the threat of defaults. Spending and wage cuts adopted in response to the crisis have sparked street protest in Bulgaria and in the Baltic countries of Latvia and Lithuania.

East Europe will slide into a recession this year as demand for exports collapses, the International Monetary Fund said in January. The economies will shrink 0.4 percent, the IMF predicts.

Hungary’s objective of cutting the budget deficit to a range of 2.7 percent to 2.9 percent of GDP this year and to 2.2 percent by 2011 “is subject to risks,” the ministers said.

Hungary must also set its overall debt level “on a declining path” toward the limit of 60 percent of GDP stipulated in euro-adoption rules, the ministers said.

With the economic slump hurting government revenue, Latvia’s “budgetary outcome could be worse than projected” through 2011, when it plans to bring it in line with the criteria for euro adoption, the ministers said.

To contact the reporters on this story: Agnes Lovasz in Brussels at alovasz@bloomberg.net; Meera Louis in Brussels at mlouis1@bloomberg.net.

Last Updated: March 10, 2009 07:52 EDT