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EU to lift ban on development aid to Hungary

June 1st, 2012

Commentators all welcome the recommendation of the European Commission  that an earlier threat to suspend development aid to Hungary should not be carried out. They also warn, however, that the government still has a lot to do in order to boost economic growth and restore investors’ confidence.

On Wednesday, the European Commission said that it would recommend to the Council of Finance Ministers of the EU to lift the suspension of the 500 million Euros worth of cohesion funds (see BudaPost March 14) that would have come into force in January 2013. According to the Commission, the Hungarian government has taken the necessary steps to reduce the deficit below the 3 per cent cap (see BudaPost April 25). The Commission added, however, that it will not propose to suspend the excessive deficit procedure against Hungary which began in 2004  (see BudaPost March 15), and proposed further structural reforms. PM Viktor Orbán said the report indicated that “Hungary has restored the confidence of investors”.

Népszabadság in a front page editorial . The left-wing daily points out that the Forint has weakened against the Euro and stock prices also fell after the announcement, which, according to Népszabadság, suggests that Hungary has not yet regained investors’ confidence, although the latest fluctuations have been caused by concerns about Spain and Italy.

The EU’s about-face is, of course, great news for Hungary. But we cannot be fully happy,” Tamás Nánási writes in Magyar Nemzet. Nánási believes the Commission’s recommendation will help to restore market confidence towards Hungary, but adds that the county had to pay a very high price in order to meet the EU’s harsh requirements. The European Union by applying double standards (see BudaPost May 11), compelled the Hungarian government to reduce the deficit through austerity measures, which stifle growth and deepen the economic crisis, Nánási remarks.

In Magyar Hírlap, Csaba Szajlai describes the Commission’s announcement as the first significant economic success achieved by the Orbán government. But the Commission has also warned that the prospects of long-term Hungarian economic growth are still uncertain, Szajlai adds. He wonders whether the IMF will also be convinced by the achievements of the Hungarian government, since some of the previous recommendations of the Commission have not been implemented – most importantly, the Hungarian government has not fully restored the Central Bank’s independence. Szajlai points out that it would be crucial for the country to reach a credit-line agreement with the IMF, in order to reduce interest rates, and the budget could save some 20-25 billion Forints a month as a result.

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