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The Hungarian government should quarrel less and demand more

April 7th, 2012

A left-wing economist calls upon the government to ask for more complex international financial assistance rather than bargaining so hard over the preconditions.

In an OpEd piece in Népszabadság, Péter Róna, a former international banker and now a Professor at Blackfriars Hall, Oxford, suggests that the main problem with the stance of the European Union and of the International Monetary Fund is not what they are asking for, but what they are not offering. By the same token, he criticises the Hungarian government for not putting forward a sufficiently broad request.

Hungary is currently engaged in tortuous negotiations about its fiscal policy as well as a substantial portion of the legislation the government has put through over the past 20 months. Talks over a joint credit line from the IMF and the European Union will only start when an agreement is reached between the Hungarian government and Brussels on at least some of those issues.

Péter Róna believes the credit line will not be sufficient to solve Hungary’s problems. The current practice of selling government bonds at an interest rate of around 8 per cent is in fact unsustainable. In order to service such a high yield in the long run, the Hungarian economy should grow by 4.5 to 5 per cent yearly. (GDP growth is estimated to be around zero this year.) An IMF credit with a 4.5 per cent interest rate would certainly be helpful. But on top of that, the European Central Bank should buy Hungarian bonds, and lend some 2 per cent of its 1000 billion Euro emergency fund to Hungary, Róna suggests. Without that kind of supplementary liquidity, he contends, the restrictive fiscal policy demanded by the European Union will result in recession and by implication, further financial difficulties.

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