"If the next government is wise and tenacious enough, Hungary could be able to adopt the euro on 1 January 2014, Prime Minister Gordon Bajnai said on Thursday. His remark is interesting in view of a comment by Mihály Varga, a top economic advisor in opposition party Fidesz, who said yesterday that euro zone accession could be possible in 2015."Euro is a token of the hard-earned stability that we could obtain by achieving the Maastricht criteria as soon as possible and then pertaining to them," Bajnai wrote in an article published in local daily Népszabadság.
For euro adoption Hungary needs to lower its budget deficit to below 3.0% of GDP and then keep it there, start reducing its government debt to GDP ratio towards 60% (from cc. 80% currently) and keep inflation in check, as well, the PM said.
In order to achieve these goals, the government needs to pursue a "disciplined and prudent fiscal policy," Bajnai said, adding that households and companies can only benefit from the stability provided by the euro if the economy expands by at least 4.0% annually in a sustainable manner.
"This [growth] rate can give the feeling of success to the Hungarian society; this enables a sustainable increase in employment that could be a basis for social stability. [...] If we pursue an economic policy of common sense, annual average growth of 4.0% is attainable between 2011 and 2014 and that would create a surplus of about HUF 2,000 billion for the budget over four years," Bajnai added.
Portfolio.hu viewpoint:
Euro adoption and the related target dates have apparently become a central issue in the election campaign. A simple explanation to this phenomena is that support for euro zone entry is relatively high in Hungary in CEE and the parties simply cannot ignore such a popular issue, although they carefully avoid addressing the hardships the country will be faced with on the road to the EMU.
A Eurobarometer survey conducted last year shows a 54% public support for euro entry in Hungary, against 60% in Romania, 45% in Poland and 37% in the Czech Republic.
The high numbers in Hungary and Romania may be explained by the popular FX-denominated borrowing that highlighted the importance of a stable single currency over the past 18 months.
The last time the high support in CEE for euro entry was pointed out in a research note by Bank of America/Merrill Lynch. "To adopt the euro in Jan 2014, Hungary would have to be positively assessed in the (May) 2013 Convergence Report (NB. Convergence Reports are normally prepared every two years, but can also be prepared 'on request’). This would require meeting the fiscal criteria (annual data) by 2012; and the HICP inflation / interest rate criteria (12-month averages) by Q1 2013."
"Euro entry appears as the single most powerful economic policy target that might guarantee re-election for the government (most likely led by the rightwing Fidesz) that emerges from the April 2010 parliamentary elections," BofA/ML added.
Looking back, it would be advisable for the parties, especially after putting of euro entry dates again and again, to be careful when setting a date and not use the issue overzealously in the election campaign."
Source: Portfolio Online Financial Journal
19.02.2010