Way back in 2004, when most of Europe was not worried about budget deficits, Hungary was in trouble.
As it joined the EU, Brussels decreed Budapest was spending more than it was bringing in in revenue and its deficit – at nearly double the 3.0 percent limit set down in the stability and growth pact – was unacceptable.
Nine years later Hungary has just been told the EU believes its deficit is under control; an apparent victory for Prime Minister Viktor Orban’s unconventional economic policies.
However, they are not exactly dancing in the streets of Budapest in celebration. As one woman said: “We can’t feel secure. You don’t know what will happen in the European Union in the future. The financial situation – in the whole world, not just in Europe – is that you can never know when you’ll need help.”
The European Commission forecasts growth of 0.2 percent for Hungary for 2013. In the first three months of the year it managed GDP expansion of 0.7 percent.
The Commission is predicting the budget deficit should be 2.7 percent of GDP, and inflation – which recently dropped to the lowest in almost four decades – is predicted to reach 2.6 percent.
Prime Minister Orban’s unorthodox policies to cut debt and revive the economy – which included effectively nationalising private pension funds – have worked, but many economists believe Hungary risks just bumping along with very low growth for years.
Orban disagrees and said being released from budget scrutiny by Brussels is “recognition and support” for him to keep doing what he has been doing.
Euronews’ Doloresz Katanich spoke to the Hungarian Minister for the National Economy, Mihaly Varga and asked him what he thought about the EU’s decision to release Hungary from its Excessive Defecit Procedure.
Mihaly Varga: In 2011 and 2012, Hungary showed clearly that its able to operate its deficit below 3 percent of GDP. Now, the European Commission has proposed that Hungary be let out of its Excessive Deficit Procedure after nine years. Ecofin has just approved this proposal (from the European Commission) without discussion, so now the matter could closed be for Hungary.
euronews: This week you announced another austerity programme – despite the fact that the budget deficit has been significantly reduced, and it was well known that the European Commission was proposing that Hungary should be released from the (Excessive Deficit) Procedure. So, why is the new programme necessary?
Varga: It’s necessary for two reasons. On one hand, Hungary doesn’t want to be one of those countries that temporarily gets its deficit down, but then has to go back to an Excessive Deficit Procedure later.
On the other hand, the inflation rate hasn’t been this low for 38-39 years. This is a good news for the economy, good for people, but is problematic for the budget. Therefore, the government decided to push parliament to change the budget plan for this year. The government is suggesting ways to generate additional income to compensate for the missing revenues.
euronews: The country-specific recommendations from the European Commission indicated that Hungary’s extra taxes, including on banks and telecoms, would dampen growth.
Now that the country is not under the (Excessive Deficit) Procedure any more, will you make changes to your approach?
Varga: Hungarian fiscal policy has been very disciplined for the past three years. In 2013 and 2014, we expect to keep the deficit below 3 per cent of GDP, and we want it to stay below that level – even if it needs additional measures to achieve it. Although we have elections coming up in Hungary, we don’t want to waste money. We don’t want to overspend or increase the national debt.
euronews: What other measures are you planning in order to stimulate economic growth?
Varga: The Hungarian economy may now have entered a period of growth. The state needs to support investment by spending the resources available in order to do so. Some of these resources come from the EU – and, in order to spend this money more effectively, the Hungarian ministries will decide where in the economy the funds are most needed.