bne -

The Hungarian government has taken things a step too far and the International Monetary Fund (IMF) won't return to Budapest for more talks over a bailout loan this year, local media report.

Following another deterioration in relations, the Fidesz government does not now expect the IMF to move on to a second round of talks on a credit facility in 2012, Nepszabadsag reported on October 25. Meanwhile, other local media report that Prime Minister Viktor Orban is preparing for a fierce battle with the European Commission over the country's failure to exit the Excessive Deficit Procedure (EDP), but that this time the EU executive will not go easy on Hungary, reports portfolio.hu.

Orban has been running a long-winded campaign clearly designed on the one hand to try to keep the international lender close enough to keep the markets happy, while variously turning to insults and defiance. That second mode not only plays to the domestic political audience, but is also likely calculated to make sure a deal with the IMF never gets too close. Sealing a deal would mean agreeing to limits on Budapest's economic policy making, which has been erratic and highly criticized internationally since Fidesz came to power in 2010.

One of the latest stunts came in early October, when the government followed up a set of surprisingly orthodox austerity measures with a full-blown media campaign blasting the IMF's demands and pledging resistance. Chief aid negotiator Mihaly Varga said on October 23: "We are once again in the clutch of foreign forces; once again a remote interest is bringing trouble on our heads."

Although presently "the boots of foreign soldiers are not trampling on our soil, our country is still in shackles," he added.

Had enough

Nepszabadsag suggests the IMF has probably taken the latest insults to heart, although it seems more likely that it objects to the latest round of austerity measures announced by Hungary last week. In an attempt to play the IMF off against the EU - its partner in the bailout plan - Budapest said the demands of exiting the EDP have pushed it to renege on an agreement to cut the country's windfall tax on the banking sector in half next year. The IMF has clearly stated in the past that the burden on the banks is hurting economic growth, and has also insisted the government cease erratic tax rises in the name of austerity and implement systemic reform instead.

At the same time, the country's banks, dominated by large Eurozone financial groups, have been infuriated by constant attacks from Budapest over the past two years, and have taken their complaints to Brussels.

Citing an unnamed source close to the negotiation process, Nepszabadsag claims that the talks are also being delayed by economic interest groups capable of influencing Brussels, who "do not want to let Hungary out of the EDP." One government official claims this is why the European Commission is demanding additional measures on top of the two austerity packages announced recently.

Senior ranking members of Fidesz, who spoke on condition of anonymity, told hvg.hu last week that "the European Commission will be a tough nut to crack, because the leadership of Fidesz believes there is a group within the Commission that wants to break the Hungarian government." Meanwhile, Orban is reported to be determined to win the "war" with Brussels.