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Could Hungary benefit from the IMF’s U-turn?

May 11th, 2012

Pro-government commentators wonder whether Hungary can expect more flexibility from the EU and the IMF, after Olli Rehn and Christine Lagarde suggested that the principle of deficit cuts is not carved in stone – for some EU member states, at least.

The IMF and the EU have realized that there is no uniform straightjacket which suits every single state,” Anna Szabó writes in Magyar Nemzet. Olli Rehn, the European Commissioner for Economic and Financial Affairs has suggested that in future, the EU will be more flexible regarding budget deficit expectations, and some states will be allowed to have higher deficits than outlined in EU regulations. IMF chief Christine Lagarde has also said that for those countries where restrictions could undermine economic growth, deficit cuts should not be considered as an utmost priority. Romania has already been allowed to have a higher deficit than agreed upon with the IMF, and  the Romanian government has been given the green light to increase pensions and wages in the public sector.

The U-turn of the IMF and the EU suggests that both institutions have realized that fiscal rigour would deepen the economic crisis by reducing demand, increasing unemployment and possibly resulting in a new credit crunch, Szabó notes. She wonders, however, whether Hungary can also expect more leniency and flexibility from international institutions. She dares to hope that this time round, the IMF and the EU will not only be concerned about the surplus taxes levied on foreign companies, but will also recognize the efforts the country undertaken already to reduce deficit and debt.

Hungary will be in a better position after the IMF’s and the EU’s turn, say economic analysts asked by Magyar Nemzet. According to both Károly Lóránt and Zoltán Pogátsa, the Hungarian government will have more leeway in the talks on a credit-line, after the apparent realisation by the IMF that restrictions will only further entrench the financial crisis. The analysts also note that after the French and Greek elections, the number of countries that reject the politics of austerity is on the rise, which could again be helpful for the Hungarian government.

There is little hope that Brussels and Washington will offer concessions to Hungary,” cautions Csaba Szajlai in Magyar Hírlap. The conservative commentator who has been  highly critical of the Orbán government’s economic policies in recent times, points out that Hungary is considered a bete noire by both the IMF and the EU. Hungary has been  under the excessive deficit procedure for eight years, has been downgraded to junk status by all major credit rating agencies, public debt is double the regional average and  economic output has stagnated. Taking all this into account, Hungary has no choice but to reach an agreement with the IMF on a credit-line as soon as possible, Szajlai concludes.

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