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It’s good to be an analyst in Hungary

Two statements by senior politicians from Hungary’s governing Fidesz party over past two weeks:

Tibor Navracsics, Deputy Prime Minister, June 23

“Obviously, during the planning of next year’s budget we will have to reckon with whether we can meet (the 3 percent 2010 target). We hope we can meet this undertaking by the (previous) Bajnai government, which would bring the budget deficit below 3 percent.”

György Matolcsy, Minister for Economic Development, July 2

“Hungary will seek a two-year precautionary deal with the IMF and EU for 2011-12 in the range of 10-20 billion euros and hopes to agree with lenders on a higher budget gap than 3 percent of GDP for next year.(…) The deep structural reforms which the government is planning for 2011 and 2012 will have significant additional costs, and the difficult situation of the euro zone economy could also make deep deficit cuts hard next year. (…)

In Hungary, totally contradictory statements from the government are no barrier to analyzing and predicting political tendencies.

These statements reflect uncertainties over the direction of economic policy within Fidesz. While both Navracsics and Matolcsy agree that the budget-deficit target for 2010 (3.8% of GDP) is carved in stone, the 2011 deficit goal is apparently up in the air.

Hungary’s government is set to meet this month with its main creditors, the EU and the IMF. The Hungarians will probably try to persuade them that minor fiscal loosening, along the implementation of certain reforms, may be a good medium-term investment for the country and won’t endanger economic stability. The success of this move is highly uncertain, as EU leaders and investors are still afraid of financial turbulence – or even wholesale collapse – among its members. Moreover, Hungary’s forint tumbled and its credit-default swap prices shot up following the recent crises in Greece and Romania, demonstrating that Hungary’s economy is still extremely vulnerable and fragile. Both the IMF and the EU are reluctant to let countries loosen their fiscal policies if they are able to keep their budget deficts below 3%.

So the uncertainty remains: The generosity of IMF and EU will decide whether Navracsics or Matolcsy will prevail.

Péter Krekó-Krisztián Szabados

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