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 HVG.hu 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 portfolio.hu.

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.