Hungary’s Orban Willing to Compromise in Dispute With EU
January 19, 2012, 1:23 AM ESTBy Edith Balazs and Jones Hayden
(Updates with more comments from Orban starting in first paragraph.)
Jan. 18 (Bloomberg) -- Hungarian Prime Minister Viktor Orban is willing to compromise to resolve a conflict over a new central bank law that halted international aid talks as the country struggles with the highest debt among the European Union’s eastern members.
“I’m only tough when the interests of my country require me to be and I compromise when the interests of the Hungarian people require me to do so,” Orban told a news conference today in Strasbourg, France. The government is ready to “entirely rework” two temporary provisions of the new constitution if the EU requests, he said.
Orban is trying to revive bailout talks with the EU and the International Monetary Fund after discussions broke down in December over his refusal to change a central bank law the bloc says would weaken monetary-policy independence. The EU has also criticized Orban for enshrining a 16 percent flat tax and a potential merger of the central bank and the financial market regulator in the constitution in the form of temporary provisions.
The forint strengthened 1.4 percent to 304.97 per euro, its strongest since Dec. 22, after gaining as much as 1.5 percent earlier in Budapest, making it the world’s best-performing currency today.
‘Swift results’
Orban told lawmakers at the European Parliament today that he had written to Jose Barroso, head of the European Commission, showing his desire for an agreement. Hungary and the Commission disagree on one last point regarding central bank independence, namely whether the bank’s president and members of the rate- setting Monetary Council should be asked to take an oath on the Constitution, Orban said, adding that he’ll consider the issue.
“I’ve expressed my opinion that the issues raised by the commission can be solved easily, simply and fast,” he said. “I hope for swift results from our meeting next week” with Barroso, he said.
Hungary has become a test case for democratic principles and economic-policy rules in the EU, forcing the Commission to make good on a pledge to use all its powers to enforce the 27- nation bloc’s norms. The country, which isn’t part of the 17- nation euro area, risks compounding the two-year-old European debt-crisis centered on the single currency.
‘Precautionary Instrument’
Hungary, which is “weak and has a high debt level,” doesn’t want money from the EU, only a “precautionary instrument,” Orban said. “We’re willing to sell our bonds even with a higher interest rather than use cheap European money.”
Orban said he expected financial aid talks with the two international institutions to involve “grave” economic issues.
The Commission, the European Union’s regulatory arm, yesterday threatened a lawsuit against Hungary for encroaching on the central bank’s independence and began infringement proceedings against Orban’s government for political meddling with the judiciary and the data-protection authority.
Hungary would abandon a plan to merge the central bank and the markets watchdog should the Commission request it, Orban said. “If the Commission thinks we shouldn’t merge them, they’ll remain separate.”
Barroso told the same session of European lawmakers that he called on Orban to address concerns about new Hungarian laws “in a determined and unambiguous way.”
“We will not hesitate to take further steps if deemed appropriate,” Barroso said.
Amend Regulations
The Hungarian Cabinet is ready to amend regulations that haven’t changed for 20 years and haven’t drawn objections from the Commission in the past, Orban said. “I can’t bow to the force of the arguments, but if the Commission deems it important, we’ll bow anyway.”
Hungary, which became the first EU country to receive an IMF-led bailout in 2008, shunned fresh aid in 2010 when Orban became prime minister. He reversed his policy last year when the state started struggling to raise funds at debt auctions and the forint plummeted.
The EU’s most-indebted eastern member received its third sovereign-credit downgrade to junk in the last two months when Fitch Ratings on Jan. 6 followed moves by Moody’s Investors Service and Standard & Poor’s.
Hungary has “no alternative” to reaching a bailout agreement, Raiffeisen Bank International AG Chief Executive Officer Herbert Stepic said on Bloomberg Television yesterday. “If there was no IMF agreement then, of course, the country would in the medium-term default, which we don’t see.”
Debt Contagion
Regulators and policy makers in eastern Europe are trying to shield economic growth against contagion from the euro area’s deepening debt crisis.
Hungary will have to make payments on its 20 billion-euro ($26 billion) 2008 bailout this year, with installments of about 700 million euros due in February and then the same amount at quarterly intervals, plus 300 million euros in June and 500 million euros in each of September and December, according to researcher Capital Economics.
The country also has a 1 billion-euro bond maturing in November and a smaller yen note due in July, according to data on the Hungarian Debt Management Agency’s website. Against that, the agency has deposits of 2.5 billion euros, according to Royal Bank of Scotland Group Plc.
--With assistance from Krystof Chamonikolas in Prague and Zoltan Simon in Vienna. Editors: Alan Crosby, James Gomez, Andrew Langley, Jonas Bergman
To contact the reporters on this story: Jones Hayden in Brussels at jhayden1@bloomberg.net; Edith Balazs in Budapest at ebalazs1@bloomberg.net
To contact the editor responsible for this story: Alan Crosby at acrosby1@bloomberg.net
