Hungarian government says ‘no’ to euro

On paper, Hungary is obliged to eventually replace the forint with the euro. But somewhat like Sweden, which is obligated to do the same on paper, the Hungarian national currency is likely to stay around for some time to come, as the Orbán government has no plans to move towards the euro at any point in the near future. With europhiles like former Foreign Minister János Martonyi now out of the way (in 2011, Mr. Martonyi observed that he continued to support the introduction of the euro), some other key voices in Prime Minister Viktor Orbán’s government are now openly shunning the common currency.

“It is not an immediate interest of the country,” said Zoltán Kovács, the Hungarian government’s international spokesperson told CNBC. “The economy, the structures that we are running need to be up to a standard that would make it beneficial for the country to join. Not being members of the euro zone at the moment has advantages for the country. Taxation policies really help the economy, we are trying to utilise that for the best in policy making,” he added. Hungary is not only known for its 16% flat tax, but also for the myriad of special corporate taxes introduced against different segments and players in the economy. On occasion, the government will introduce targeted corporate taxes against specific companies that are perceived as being disloyal to the governing party in some manner, or against the party’s interests.

Hungarian euro pipe dream. These are proposals for Hungarian euro coins by Kámen Anev graphic artist. They were created shortly after Hungary joined the EU in 2004 and were first published in the Magyar Hírlap.

Hungarian euro pipe dream. These are proposals for Hungarian euro coins by Kámen Anev, a graphic artist. They were created shortly after Hungary joined the EU in 2004 and were first published in the Magyar Hírlap daily.

But in terms of euro adoption, Hungary remains ill-prepared. The national debt needs to be brought down to 60% of the GDP and it currently stands at 79%. The national debt ratio peaked in 2011 at 82.2% and has since decreased only slightly. When Mr. Orbán took over in 2010, it stood at 79.8%. As such, there has been virtually no progress on this front in the past four and a half years. The Organization for Economic Cooperation and Development (OECD) estimates that it will take two years to get the national debt down to 75%.

Hungary has no fixed target date for joining the euro, although Mr. Orbán had indicated previously that the earliest possible date is 2020. The common currency is also running into problems elsewhere. While the risk of Greece dumping the euro for the Drachma has faded, a key EU member state is now moving in a direction that may lead to an “in/out” referendum on the euro, as early as 2015. The Guardian has written at length about rumblings in Italy around resurrecting the Italian lira. “Italy is heading for the exit. While it might seem fanciful for one of the founding members to consider leaving the euro, there is a growing sense that no more than a couple of years from now, Rome will once again be administering its own currency,” according to The Guardian. The main problem, as identified by Italians who are frustrated by the fact that the country’s GDP is 10% smaller than before 2008, is the inability to devalue their own currency and the European Central Bank’s reticence to print more money. Comedian-turned-politician Beppe Grillo of the populist Five Star Movement is calling for a referendum on the euro.

Meanwhile in Hungary, there seems to be no real appetite to even think about introducing the euro. While the years following Hungary’s admission to the EU were filled with optimistic target dates for adopting the euro, the Hungarian forint now seems certain to “live another day.”

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