Hungary and EU set up another game of chicken

By bne IntelliNews July 11, 2012

Tim Gosling in Prague -

The high-stakes game of chicken between Hungary and the EU and International Monetary Fund (IMF) is kicking off again ahead of the arrival of officials from those organisations to open talks over a loan programme. The contrary stances on conditions for the talks to progress promise a long-winded and bad tempered set of negotiations.

Displaying a spiky side that tends to come out whenever progress towards a deal with the IMF occurs, Hungarian Prime Minister Viktor Orban made yet another appeal to Hungarians' nationalist sentiment against interference from outside on July 10 and insisted the government will only accept conditions that serve the country's interests. The PM said that Budapest will stick with the planned transaction tax, and ruled out several other moves on which the IMF and Brussels are likely to push.

The same day, local media reported that the European Commission is ready to take a tough line on opening the talks, including insisting on a review of the country's controversial bank tax, and consultation on the 2013 draft budget before it goes in front of parliament. According to however, which reported details from what it claimed are leaked EU documents, there is little mention of the transaction tax, which is expected to be high on the international lenders' list.

The contradictory stances ahead of the arrival of IMF and EU officials to finally start discussions over a bailout on July 17 suggest slow progress. Orban will likely be happy with that, as his government still appears to be hoping to get though the crisis and gain access to international debt markets to fund rollover debt before having to sign up for a rescue package that would have strings attached.

Meanwhile, the market appears to be losing some faith that the international lenders will be able to rein in economic policy in Budapest. The EU and IMF are stuck somewhat in between pressure from the markets and the banks on one side, and the desire to avoid another European country sliding towards crisis on the other. "If something serves our goals, then we will negotiate about that, will agree on that - if it does not serve our goals, or rather the country's goals, then we would rather bypass it," Orban told private news channel HirTV in an interview on July 17, according to Reuters. "So our starting point is not the conditions set by the negotiating partner, but our own objectives."

He then turned to the planned transaction tax, which piles more pressure on the country's banks - mostly with Eurozone parents - as well as having reignited the government's bitter fight with the Magyar Nezmeti Bank (MNB). The IMF and EU had made the independence of the central bank the crucial point for opening the talks, and the Hungarian parliament finally approved a new central bank act last week.

However, MNB Governor Andras Simor says the inclusion of the institution in the transaction tax plan threatens its ability to freely set rates. Hungary has sent copies of the plan to the European Central Bank (ECB) for a legal opinion. Pre-empting any reply from Frankfurt, Orban said extending the tax to the central bank was "logical, necessary and unavoidable", and no one could veto parliament's decision to pass the legislation, which it did on July 9. The tax will be also levied on commercial banks and the state treasury. "Hungary is governed by Hungarians, and if the Hungarian parliament has decided on introducing a tax on financial transactions, has determined who this will apply to, then that's the way it will be," he said. "No one can veto the Hungarian parliament's decision. The ECB has the right to express its opinion, it's worth listening to its opinion... but has no possibility of taking part in the decision. Regardless of this, we respect the ECB very much, of course," he stressed.

The PM also ruled out the introduction of a real estate tax, which flies directly in the face of country-specific recommendations from the European Commission made in May, and which HVG reports will be the basis of the opening of the talks.

Most specifically, the website writes that the leaked documents put the bank tax and the 2013 budget front and centre for the Commission. Brussels would like to see government plans for leading the country out of the excessive deficit procedure once and for all - it has broken the deficit threshold each and every year since joining the EU in 2004 - including a presentation of structural reform and the feasibility of meeting mid-term targets. The latest European Commission forecast projects 1% GDP growth in 2013, whilst Hungary's draft budget is based on a 1.6% expansion, points out

It clearly makes no sense to agree a budget for next year ahead of the talks on a loan programme. Should a bailout be agreed, it will change the country's fiscal dynamics significantly, whilst there will clearly need to be adaptations of revenue and spending for the lenders to agree a programme.

One of those issues will the bank tax, according to HVG. The Fidesz-led government introduced the highest tax on the sector in Europe when it came to power in 2010. The country's banks have complained bitterly - not least to the EU - and pulled back on lending to the economy. The tax is due to be cut in half in 2013, before being cut out completely in 2014. However, the new transaction tax places them under an even greater burden, and the banks are lobbying hard to at least get it scrapped from January.

The commission could also demand adaptation of the telecoms tax and the Economic Stability Act, and expansion of the authority of the Fiscal Council, according to the reports.

Related Articles

UK demands for EU reform provoke fury in Visegrad

bne IntelliNews - The Visegrad states raised a chorus of objection on November 10 as the UK prime minister demanded his country's welfare system be allowed to discriminate between EU citizens. The ... more

Erste claims Hungary is breaking peace deal with banks

bne IntelliNews - Hungary will breach its February agreement with Erste Group if it makes the planned reduction in the bank tax conditional on increased lending, the Austrian lender's CEO ... more

Austria's Erste rides CEE recovery to swing to profit in Jan-Sep

bne IntelliNews - Erste Group Bank saw the continuing economic recovery across Central and Eastern Europe push its January-September financial results back into net profit of €764.2mn, the ... more

Register here to continue reading this article and 2 more for free or 12 months full access inc. Magazine and Weekly Newspaper for just $119/year.

If you have already registered, enter the information below with the same email you used previously and you will be granted immediate access.

IntelliNews Pro subscribers click here

Thank you. Please complete your registration by confirming your email address. A confirmation email has been sent to the email address you provided.

Thank you for purchasing a bne IntelliNews subscription. We look forward to serving you as one of our paid subscribers. An email confirmation will be sent to the email address you have provided.

To continue viewing our content you need to complete the registration process.

Please look for an email that was sent to with the subject line "Confirmation bne IntelliNews access". This email will have instructions on how to complete registration process. Please check in your "Junk" folder in case this communication was misdirected in your email system.

If you have any questions please contact us at

Subscribe to bne IntelliNews website and magazine

Subscribe to bne IntelliNews website and monthly magazine, the leading source of business, economic and financial news and commentary in emerging markets.

Your subscription includes:
  • Full access to the bne content daily news and features on the website
  • Newsletters direct to your mailbox
  • Print and digital subscription to the monthly bne magazine
  • Digital subscription to the weekly bne newspaper

IntelliNews Pro subscribers click here

bne IntelliNews
$119 per year

All prices are in US dollars net of applicable taxes.

If you have any questions please contact us at

Register for free to read bne IntelliNews Magazine. You'll receive a free digital subscription.

If you have already registered, enter the information below with the same email you used previously and you will be granted immediate access.

Thank you. Please complete your registration by confirming your email address. The confirmation email has been sent to the email address you provided.

IntelliNews Pro offers daily news updates delivered to your inbox and in-depth data reports.
Get the emerging markets newswire that financial professionals trust.

"No day starts for my team without IntelliNews Pro" — UBS

Thank-you for requesting an IntelliNews Pro trial. Our team will be in contact with you shortly.