The European Union said Wednesday it was ready to resume negotiations on financial assistance to Hungary after Budapest bowed to pressure to maintain the independence of its central bank. The decision, announced by European Commission spokesman Olivier Bailly, will see talks also involving the International Monetary Fund on a credit line worth 15-20 billion euro ($20-26 billion) that was first sought last November.
The former communist bloc state, whose Prime Minister Viktor Orban has a two-thirds majority in parliament, has been repeatedly at loggerheads with Brussels over the past year but it needs help from its European partners.
The Eurozone debt crisis has hit the Hungarian economy badly, the forint has tumbled to record lows and borrowing costs having risen sharply, with foreign banks outraged by several government measures, including additional levies.
“The Commission has today assessed that Hungary has taken sufficient action and commitments to enter into negotiations on precautionary balance of payment assistance,” the EU executive said in a statement.
The news gave a boost to Hungary’s currency, the forint, which firmed to 287.50 against the euro from 291.80 before the announcement. On Monday, the forint was trading at around 300.
The level of credit default swaps (CDS), the price of insurance against default on government bonds, fell to 559 basis points (5.59 percentage points) from 570 basis points earlier on Wednesday.
It was down from around 600 on Monday. On Tuesday, European Commission president Jose Manuel Barroso welcomed Hungary’s decision to change a disputed law which Brussels and other critics said fatally compromised the independence of the central bank.
The change of stance was demanded to ensure a “stable and independent legal environment that lies at the heart of … investors’ confidence and influences macroeconomic stability,” Wednesday’s statement said.
While Hungary has changed tack on its central bank, the European Commission will still take Budapest to the European Court of Justice over a data protection law and legislation on the retirement age of judges, Bailly said.
Budapest must now consult with the European Central Bank and the statement stressed that “before the negotiations can be concluded, the Commission expects that the commitments are fully implemented.”
No date was given for the start of the EU and IMF negotiations, with the Commission saying simply that dialogue would now begin with the Hungarian authorities over the “modalities” of the talks.
Earlier this month, Orban attacked the EU in a weekly radio interview slot at home for imposing political conditions on the badly needed loan, saying these “would amount to blackmail.
“We are working in a very good cooperation spirit with Hungary,” Bailly said of the process.
During the 2008-2009 financial crisis, Hungary barely escaped bankruptcy, thanks to a credit line of 20 billion euros from the IMF, World Bank and EU.
The central bank on Tuesday left its base interest rate unchanged at 7.0 per cent for the fourth month in a row. Its governor said that an austerity programme announced Tuesday by the government, which relies heavily on higher taxes, could fuel inflation, which will probably be higher than the 4.2 per cent forecast.
Brussels, April 25, 2012 (AFP)
