Feb. 2 (Bloomberg) -- Hungary’s ability to agree with the European Union on a contested judiciary reform is just as important as amending the criticized central bank law for financial aid talks to begin, Morgan Stanley economists said.
“While a compromise on the central bank act seems fairly easy to reach, in our view” the “judiciary issue is as important,” economists Pasquale Diana and Mihail Bozinov wrote in a report today from London.
Hungary is seeking to revive bailout talks with the EU and the International Monetary Organization, which broke down last year after the government passed a central bank law that the 27- member bloc said threatens monetary policy independence. Hungary faces infringement procedures by the European Union over laws on the central bank, the judiciary and the data protection agency.
The government has so far refused to amend legislation stipulating that judges must retire at the age of 62 years, versus 70 previously, which the EU says is discriminatory.
“Given the rising tension in Brussels regarding the government, the European Commission is likely using this opportunity to exert as much pressure on Hungary as possible,” according to the report.
A deal with the two institutions is “well within reach” once Hungary resolves its issues with the EU, with an agreement likely by April, the economists said.
A “sizable” credit line of as much as 20 billion euros ($26 billion) would allow the central bank to lower interest rates by at least 100 basis points by end-2012, Morgan Stanley said.
--Editors: Zoe Schneeweiss, Andrew Langley
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