Financial Technology

Financial Technology

January 12, 2012

Hungary challenges EU to clarify legal complaints

BUDAPEST, Hungary (AP) — Hungary's prime minister said Thursday his government was ready to negotiate objections to its new constitution with the European Union, but was waiting for "not political opinion, but arguments."

The EU this week said Hungary's fiscal policies were unsustainable and threatened legal action over a new constitution which is seen curtailing the independence of judges, the central bank and the data protection agency, among others.

Prime Minister Viktor Orban responded by dismissing the EU's complaints so far as political.

"We are ready to negotiate all the points, but what we need is not political opinion, but arguments," Orban told a group of foreign correspondents. "When the arguments on behalf of the European Union are convincing — that it's better to accept and follow that line — then there is no reason not to do that."

Orban said he felt markets were "more optimistic" about Hungary and that the fundamentals of the economy were "far stronger than many suggested."

Hungary is in preliminary talks for financial aid from the EU and the International Monetary Fund, which also voiced concerns about the country's policies. The national currency has slumped in value recently and investors have asked for much higher interest rates to lend the country money, suggesting they fear for its financial future.

Orban said Hungary needed the safety net provided by an IMF–EU deal to soothe markets, but insisted that the country would continue to finance itself from the sale of bonds to investors.

"I'm sure that after the agreement with the IMF we will be able to stay on the financial markets," Orban said, adding that with a combination of the two "the economy can go forward toward stronger economic growth."

Orban said most of the EU's objections about the budget deficit pertained to 2010 and 2011, making the European Commission's opinion "rather promising" for Hungary's future.

"They criticized only the past," Orban said. "It's a clear sign that we are close or we even have an agreement on the possible and wished performance of the Hungarian economy and the budget in 2012."

But European Commission President Jose Manuel Barroso, who earlier wrote two letters about his concerns to the prime minister, indicated the conflicts over the new legislation were far from resolved.

"We remain preoccupied that some of that legislation may be in violation of European laws and European principles," Barroso said Thursday in Copenhagen, Denmark. "So we will use all our powers to make sure that Hungary is in line with European principles and rules of the European Union. And I am confident that we will achieve that."

A deluge of new legislation approved at the end of 2011 by the two–thirds parliamentary majority, controlled by Orban's Fidesz party, included a new central bank law and others linked to the new constitution which went into effect Jan. 1.

While Hungary made around a dozen changes to the central bank law to more closely comply with the standards of the European Central Bank, some of the most disputed points, including new nomination procedures for top central bank officials, were passed without modification.

Legal changes would also allow the merger of the central bank and the financial regulator, effectively a demotion for National Bank of Hungary President Andras Simor. Fidesz tried to assuage EU concerns by saying that the merger was on hold at least until the end of Simor's term, in early 2013.

On Thursday, there was heavy demand at Hungary's bond auction and the debt management agency sold paper totaling 44 billion forints (euro143 million, $182 million), some 33 percent more than its initial target. The average yield on the 2022 maturity remained high, though, at 9.38 percent, not far from the 9.7 percent paid two weeks ago.

Hungary's currency, the forint, strengthened slightly to around 308 per euro Thursday afternoon, from 311 in the morning.


Jan M. Olsen in Copenhagen contributed to this report.


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