Tim Gosling in Prague -
Showing his usual level of statesmanship, Hungarian Prime Minister Viktor Orban used his Facebook account to reject the conditions demanded by the IMF for a bailout as a "list of horrors", re-starting the game of chicken between the pair.
Following the publication of a long "leaked" list of IMF conditions for a loan programme, Orban claimed that Hungary would reject calls for a cut to pensions and a higher retirement age, reduced bureaucracy, a real estate tax, privatisation, lifting the extraordinary bank tax, scrapping the financial transactions tax, and raising the rate of personal income tax.
"The list (of conditions) is long, it can be read in the press," Orban said in a video published on his Facebook page, confirming details published on September 5 by Magyar Nemzet, a paper close to his government. "The parliamentary group meeting (of the ruling Fidesz party) took the view, and I personally agree with it, that at this price, this will not work," Orban said, according to Reuters.
Given the platform used, Orban's response is clearly one of his regular performances for the domestic political audience, and is unlikely to derail the negotiations with the IMF and EU that finally began in July, following months of delays and recriminations on both sides.
However, the markets also spend time surfing social media apparently, and the forint nosedived on the back of his comments. Although the IMF last week cast doubt on the timing of the next round of talks, Hungarian yields and the forint have shrugged such news off for the most part, betting that the deepening crisis in the Eurozone will force a compromise eventually.
The last thing the IMF or Brussels needs is another EU member sliding into crisis, while for all its bluster, Budapest will need a bailout sooner rather than later as poor risk appetite blocks access to international debt markets. Indeed, it was only on September 5 that Orban came out to tell everyone that he still expects to secure a loan this autumn.
His blast on Facebook, however, has rattled that confidence. As Neil Shearing at Capital Economics points out, despite a general rally in risky assets on the back of the ECB's announcement of further action to stem the Eurozone crisis, the forint swiftly lost over 1% on the afternoon of September 6. "Meanwhile," he adds, "with a further cut in interest rates at this month's MPC meeting now off the cards, bond yields look set to rise."
"More generally," he sums up, "today's news underlines a point that we've been making since Hungary first announced that it would seek IMF assistance almost a year ago - namely that it is difficult to see both sides finding a mutually agreeable middle ground on the conditions attached to any loan. We suspect that market turbulence may ultimately force Mr. Orban to cede ground. But in the meantime, today's news is likely to expose the extent to which the recent rally in Hungarian assets has been built on flimsy foundations."
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