Big-spending governments have been given certainty that they now face a zero-tolerance regime, following the International Monetary Fund’s move to break off talks with Hungary over the country’s funding program on the weekend.

The IMF’s decision is likely to unnerve financial markets, as it draws attention to the political resistance that debt-laden countries face in implementing tough budget-cutting measures. Hungary, which is already in the fifth year of austerity, had been pushing the IMF and the European Union for a relaxation in its budget tightening targets.

The IMF has recently given a qualified blessing to Greece’s efforts to improve its public finances. In an interim report, the IMF said the Greek government’s deficit reduction plans were on track, and the government was keeping a firm grip on spending, although it warned there were clear risks in health care, and that social security and local government budgets could deteriorate. Officials from the IMF and the EU will be visiting Greece later this month to conduct a more detailed assessment of the economy before agreeing to unlock the second stage of the €110 billion IMF/EU emergency loan package.

But IMF and the EU gave short shrift to Hungary’s argument that they should agree to the country keeping its budget deficit at 3.8% of GDP in 2011. Instead, the two insisted the deficit be reduced to less than 3% of GDP in order to stabilise the country’s huge government debt, which stands at 80% of GDP.

The impasse means that Hungary won’t have access to the remaining €5.7 billion of the €20 billion emergency package it received in October 2008 from the IMF and the EU. That emergency loan facility was put in place when foreign investors abruptly shut off credit to the debt-laden country.

Hungary hasn’t used the emergency loan facility this year because improved financial conditions have enabled the country to raise money in global markets. And the country has enough unused credit facilities and cash reserves to last through the end of the year.

But the IMF/EU facility represents an important safety net for the country’s foreign creditors. Hungary had been looking to arrange a new precautionary two-year standby IMF/EU of up to €20 billion starting in 2011.

Hungary’ centre-right government won a landslide victory in April, by pledging to end the budget-cutting policies of its predecessors. The new Prime Minister Viktor Orban said Hungary would no longer accept “diktats” from the IMF and EU in future negotiations as they were “not our bosses”.

After the election, the new government claimed previous administration had lied about the size of the country’s budget deficit, and pushed the IMF and the EU to agree to more relaxed budget reduction targets.

Last month, the Hungarian government unnerved financial markets by saying the country’s economy was “much worse” than forecast, and it only had a “slim chance” of avoiding a Greek-style situation. Shortly after, the government tried to reassure nervous investors by promising to adhere to the target of cutting this year’s budget deficit to 3.8% of GDP.

Nervous investors will be waiting to see whether the stand-off with the IMF and the EU represents mere grand-standing by the newly elected government, or whether the Hungary’s political leaders have decided that the country has lost its tolerance for belt-tightening. And that they’d prefer to risk the wrath of the financial markets than to impose fresh spending cuts.