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EU deficit scrutiny still lingers Photo: Barna Burger/Prime Minister’s Office
Hungary still cannot be certain that central efforts to keep its budget gap in check will lead to the European Commission ending its scrutiny, as the EU and the IMF both have concerns about the feasibility of the government’s economic plans. BBJ GERGŐ RÁCZ
Prime Minister Viktor Orbán concluded a trip to Brussels at the end of January where he went with the principal intent of convincing the European Commission and its president José Manuel Barroso that all is sound in the Hungarian economy and that the country should no longer be subjected to investigation for its budget deficit. Hungary has been under a so-called excessive deficit procedure for having annual deficits larger than the 3% of gross domestic product margin the bloc demands since its accession in 2004. The country now faces losing sorely needed EU development funds as a penalty. “The issue for the future is whether there is any sense to upholding a threat – as the excessive deficit procedure is a threat against countries performing inadequately – that is no longer warranted by the state of the Hungarian economy,” Orbán said during his regular interview on public radio. “What we ask for is to receive the respect that Hungary deserves based on the performance of the past two, two and a half years,” he added. NOT SUSTAINABLE While Barroso told reporters that the Commission acknowledged Hungary’s efforts, it still sees the need for further and better measures to help keep the deficit under the 3% tolerance threshold in a sustainable way. In its latest projections the Commission accepted the government’s forecast of a deficit that is within the accepted bounds, but said that the gap would widen to above 3% in 2014, since the planned revenues aren’t sustainable. This of course weighs against the country’s chances of exiting the EDP. Brussels’ projections for the economy largely coincide with another report published by the International Monetary Fund, which reiterated
PRIME MINISTER VIKTOR ORBÁN AND EUROPEAN COMMISSION PRESIDENT JOSÉ MANUEL BARROSO POSE FOR PHOTOS IN BRUSSELS
its earlier observations about the need to identify sources of sustainable growth. The IMF expects that, absent any in-depth structural reforms, 2013 will see stagnation only at best after the recession of 2012. The fund actually projected worse results that the Commission in terms of the deficit, seeing the figure at 3.25% of GDP already in 2013 because of doubts related to the ability to collect newly launched taxes. As Hungary oriented its priorities over the course of last year by focusing more on the deficit (as expected by the European Commission), over growth (as favored by the IMF), Orbán’s reaction to the latest development came as no surprise. Just as the government wasn’t swayed by the IMF’s suggestions then, Orbán has also shrugged off the comments in relation to revenue doubts now. “Hungarians have reality as their biggest ally in this debate,” Orbán said, pointing out that the country has a convincing track record and though the future is unpredictable, it is equally unpredictable everywhere. CREDIT LINE TALKS OVER In the meantime, he essentially stated that Hungary’s credit line talks with the IMF are over, causing little to no surprise to observers. He reiterated what the government has previously voiced since it motioned the start of negotiations in late 2011, namely that Hungary only
wants one of the IMF’s flexible instruments, like the Precautionary and Liquidity Line. The government has always stressed that the economy is in a good shape – significantly better than investors perceive – and that it only needs an IMF package as a backstop if turmoil escalates on international financial markets. However, early on, the fund’s negotiator at the time Christoph Rosenberg issued a statement clearly stating the IMF would only negotiate a Stand-By Arrangement, which is a similar loan to the one Hungary received at the height of the Lehman Brothers crisis in 2008, and which has a stricter framework that entails meeting certain conditions and submitting to regular oversight.
Orbán stressed that the IMF wouldn’t give Hungary the framework his government wanted, which was the main reason why negotiations had not borne fruit thus far. “The talks are still under way but we come ever closer to that ‘no’,” Orbán said in Brussels. “Talks have gone on for a while now, we know everything there is to know about each other. I should add that not all knowledge is a source of joy,” he added. The premier maintained that Hungary would reject the IMF’s pro-bank agenda and keep special taxes on the fi nance sector in place. The IMF said in its latest report – as it had in earlier publications about Hungary – that the country’s banking industry is in bad shape because of the domestic environment within which it operates, and which the fund sees as the primary cause of muted lending and consequently little to no overall growth. “It took me a while to clearly understand, but it is evident now that the IMF is a bank, and what should we expect from a bank but to demand that the burdens on the finance sector be lowered,” Orbán said, adding that “in this matter, unfortunately, I see little chance of reaching an agreement with each other.” Orbán also hinted that it was a lack of willingness on the IMF’s behalf that resulted in the talks ending without results. “It [the getting of a flexible credit line] is not a question of eligibility but of will. They could have given it to us if they’d wanted to,” he said. The director of the IMF’s External Relations Department Gerry Rice said that the negotiating sides had only ever talked about an SBA that could be treated as precautionary; nothing else had ever been on the table. “As we have stated in recent weeks, these discussions have been put on hold,” Rice said at a regular IMF press briefing. Last November he had said that negotiations wouldn’t recommence until Hungary showed that it considered the EC and IMF as “valuable” partners. ■
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