"Hungary could join the euro zone in the next four years if the new government formed after elections due in April remains on the track of tight fiscal policy set by the current cabinet, Prime Minister Gordon Bajnai said."If Hungary remains on this path, if we can keep the (budget) deficit this low, then we could be the first in the region among countries that do not yet have the euro - Poland, the Czech Republic and Hungary - to adopt it," Bajnai told public television channel m1 in an interview late on Sunday.
"If we remain on this path, we will be able to adopt the euro in the next four years," he added.
The country has missed several euro entry dates in the past and currently meets none of the criteria needed to adopt the single currency. It does not have an official target date for either ERM-2 or euro zone membership.
According to the latest polls, markets expect Hungary to adopt the single European currency in 2014.
"We can put euro adoption on the agenda if there is political agreement on the most basic question, namely what economic policy we need to pursue," Bajnai said.
A general election is due in April, where the main centre-right opposition party Fidesz looks well-positioned to score a landslide victory over the unpopular ruling Socialists.
Fidesz has revealed little of the policies it would pursue if in power other than it would make euro entry one of the cornerstones of its economic agenda.
However, it has said one-off spending items not included in the 2010 budget - which targets an accrual-based deficit of 3.8% of GDP - could push the shortfall to 7.0-7.5% of the economy.
Bajnai warned that said such remarks only drive Hungary further away from the euro.
The government’s efforts to mitigate the impacts of the crisis and curb the swollen budget deficit created extra revenues of about HUF 2,000 that could be distributed - for deficit and debt reduction and to foster economic growth - over the next four years, the PM said.
"Promising more than that is irresponsible," he added.
Hungary’s budget deficit came in about HUF 75 bn lower than expected in 2009, according to the latest (cash flow based) data. Bajnai stressed, however, that this saving cannot be used this year and that the better-than-targeted deficit does not have an impact on the 2010 budget. The only influence is that "our debt is smaller therefore interest payment will be smaller, as well."
"The smaller shortfall means for the short term that the forint is more stable, and that those with foreign currency debts - some 1.7 million families - are safer," Bajnai said.
"It cannot be expected that Hungary’s forint will depreciate markedly," he noted, adding that the smaller deficit also helps restore confidence in the country."
Source: Portfolio Online Financial Journal
12.01.2010