Hungarian central bank governor calls euro a strategic error

By bne IntelliNews November 5, 2019

EU member states in and outside the euro zone should admit that the euro has been a "strategic error", Hungary's central bank governor Gyorgy Matolcsy wrote in an opinion piece published in the Financial Times. He argued that members should be allowed to exit the zone

The governor of the MNB, in charge of the central bank since 2013, described the euro as a “French snare” set up to avoid a "German Europe" but said the euro was un­able to prevent the "emergence of another strong German power".

Matolcsy wrote that most eurozone countries fared better before the euro. During the 2008 financial crisis and the 2011-12 eurozone economic crisis, most members were badly hit, having piled up huge government debts, he said.

He cited analysis by the Centre for European Policy, which claimed that there have been few winners and many losers in the first two decades of the euro.

"Members should be allowed to leave the currency zone in the coming decades, and those remaining should build a more sustainable global currency,” he said.

Hungary has been reluctant to join the common European currency, although it meets the Maastricht criteria. Earlier Matolcsy said that the country should not adopt the euro before it reaches the average per capita GDP of the EU, which could take some 20-25 years.

By losing sovereignty over monetary policy decisions, Hungary could no longer pursue successfully an export-driven economic policy backed by a weak forint. Since Hungary phased out risky foreign-currency-denominated loans, the MNB, which does not have an official exchange-rate target, has basically let the forint depreciate.

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