Hungary and the euro

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While the Hungarian government has been planning since 2003 to replace the Hungarian forint with the euro, as of 2012, there is no target date and the forint is not part of the European Exchange Rate Mechanism (ERM II). An economic study in 2008 has found that the adoption of the euro would increase foreign investment in Hungary by 30%.[1]

Contents

Adopting the euro [edit]

Under the socialist governments between 2002 and 2010 [edit]

Hungary originally planned to adopt the euro as its official currency in 2007 or 2008.[2] Later 1 January 2010 became the target date[3] but that date has been abandoned because of an excessively high budget deficit, inflation, and public debt. For years, Hungary could not meet any of the Maastricht criteria.[4] After the 2006 election, Prime Minister Ferenc Gyurcsány introduced austerity measures, causing protests in late 2006 and an economic slow-down in 2007 and 2008. However, in 2007, the deficit had been reduced to less than 5% (from 9.2%) and approached the 3% threshold in 2008. In 2008 analysts claimed that Hungary could join ERM II in 2010 or 2011 and so may adopt the euro in 2013, but more feasibly in 2014[5] or further depending on the Eurozone crisis developments. On 8 July 2008, then-Finance Minister János Veres announced the first draft of a euro-adoption plan.

After the 2008 global financial crisis, the likelihood of a fast adoption seemed greater.[6] Hungary got aid from the International Monetary Fund, the European Union and the World Bank.[7] In October 2008 the head of Hungary's largest bank called for a special application to join the eurozone.[8]

Ferenc Gyurcsány ran out of political capital in March 2009 to accept necessary measures. The EUR/HUF reached 317 on 6 March. Gyurcsány initiated constructive motion confidence against himself 21 March and nominated Minister for Development and economist Gordon Bajnai. The socialist and liberal parties accepted him to be the new prime minister and have an interim government for a year from 14 April. Bajnai's premiership brought new austerity measures in Hungary. Thus, they may keep the deficit under 4% in 2009 and the 2010 budget calculates with 3,8%. The inflation came near to 3% as a result of the crisis, but because of the risen VAT, it had an average of 5% in the second half of the year. Because of the IMF loan, the public debt risen to near 80%. The central bank's interest rate fell to 6,25% from 10,5% in 2009. The Bajnai government could not lead Hungary to the ERM-II, but it stated it does not plan to do so.

Under the conservative government from 2010 [edit]

The centre-right Fidesz won the 2010 Hungarian parliamentary election, enough to form a government on its own. The Fidesz was not specific then about its economic priorities. Shortly after the formation of the new government, they announced their intention to keep the 2010 deficit on 3,8%.[9] After more pressure, in September they also accepted to bring it down to 3% in 2011.[10] In 2010, finance minister György Matolcsy said they will discuss euro adoption in 2012.[11] Mihály Varga, another member of the party talked about possible euro adoption in 2014 or 2015.[12]

However, in February 2011, Prime Minister Viktor Orbán made clear that he does not expect the euro to be adopted in Hungary before 2020.[13] Later, Matolcsy also confirmed this statement.[14] Orbán said the country is not ready yet to adopt the currency and they will not discuss the possibility until the public debt reaches a 50% threshold. (The public debt was over 80% then and the government expected to reach its target by 2018.) When the countries of the eurozone adopted the Euro Plus Pact on 25 March 2011, Hungary decided to go along with the United Kingdom, Sweden and the Czech Republic and choose not to join the pact. Matolcsy said that they could agree with the most of its contents, but did not want to give up the country's independence regarding corporate tax matters.[15]

The Maastricht criteria [edit]

Further information: Convergence criteria

Inflation [edit]

Inflation slowed down to 2,2% in 2006. However, after the austerity measures, it was much higher than the criteria until the crisis. The crisis slowed it down until 2,9%, but in the end it was above the Maastricht criteria in 2009. It fluctuates near 4% in 2011.

Budget deficit [edit]

The budget deficit was 9,2% in the election year of 2006. After the austerity measures, it neared the 3% threshold in 2008. The deficit is planned to be 3,9% in 2009, but finally it was above 4%. The 2010 budget planned 3,8%, but it also went over 4%. The government plans to keep the deficit under 3% in 2011.

Public debt [edit]

Public debt accounted for 80,1% of GDP in 2010,[16] above the 60% target. However, the EU might accept a Hungarian public debt which declines for at least 2 years.

Interest rate [edit]

The central bank's interest rate was raised by 3%, to 11,5% from 8,5% in October 2008, because of the crisis. However, after then, the rate declined to 5.25%.[17] In 2013 February 26 it was lowered to 5.25% again. Currently it's at 4,75%, 2013 April 30[18]

ERM-II membership [edit]

As the country does not plan to adopt the euro until 2020, there is no discussion about a possible ERM-II membership.


Convergence criteria
Assessment month Country HICP inflation rate[19]
(12-months average
of annual rates)[nb 1]		 Budget deficit to GDP Debt-to-GDP ratio ERM II member[20] Long-term interest rate[21]
(12-months average
of 10yr bond yields)[nb 2]
2012 ECB Report Reference values[nb 3] max. 3.1%
(as of 31 Mar 2012)		 max. 3.0%
(Fiscal year 2011)[23]		 max. 60%, or declining
(Fiscal year 2011)[23]		 min. 2 years
(as of 31 Mar 2012)		 max. 5.80%
(as of 31 Mar 2012)
 Hungary 4.3% -4.3% (surplus) 80.6% (decreasing) No 8.01%
April 2013 Reference values max. 2.5%[nb 4][nb 5]
(as of 31 Mar 2013)		 max. 3.0%
(Fiscal year 2012)[25]		 max. 60%, or declining
(Fiscal year 2012)[26]		 min. 2 years
(as of 31 Mar 2013)		 max. 4.81%[nb 4][nb 6]
(as of 31 Mar 2013)
 Hungary 4.9% 1.9% 79.2% (decreasing) No 7.23%


  Criterion fulfilled
  Criterion potentially fulfilled: If the budget deficit exceeds the 3% limit, but is "close" to this value (the European Commission has been deemed 3.5% to be close by in the past),[27] then the criteria can still potentially be fulfilled if either the deficits in the previous two years are significantly declining towards the 3% limit, or if the excessive deficit is the result of exceptional circumstances which are temporary in nature (i.e. one-off expenditures triggered by a significant economic downturn, or by the implementation of economic reforms that are expected to deliver a significant positive impact on the government's future fiscal budgets). However, even if such "special circumstances" are found to exist, additional criteria must also be met to comply with the fiscal budget criterion.[28][29] Additionally, if the debt-to-GDP ratio exceeds 60% but is "sufficiently diminishing and approaching the reference value at a satisfactory pace" it can be deemed to be in compliance.[30]
  Criterion not fulfilled


Notes
  1. ^ The 12-months average for the annual HICP inflation rate must be no more than 1.5% larger than the unweighted arithmetic average of the similar HICP inflation rates in the 3 EU member states with the lowest HICP inflation. If any of these 3 states have a HICP rate significantly below the similarly averaged HICP rate for the eurozone (which according to ECB practice means more than 2% below), and if this low HICP rate has been primarily caused by exceptional circumstances (i.e. severe wage cuts or a strong recession), then such a state is not included in the calculation of the reference value and is replaced by the EU state with the fourth lowest HICP rate.
  2. ^ The annual average for the yield of 10-year government bonds must be no more than 2.0% larger than the unweighted arithmetic average of the bond yields in the 3 EU member states with the lowest HICP inflation. If any of these states have bond yields which are significantly larger than the similarly averaged yield for the eurozone (which according to previous ECB reports means more than 2% above) and at the same time does not have complete funding access to financial markets (which is the case for as long as a government receives bailout funds), then such a state is not be included in the calculation of the reference value.
  3. ^ Reference values from the ECB convergence report of May 2012.[22]
  4. ^ a b The reference values for HICP inflation and long-term interest rates are calculated based on the "calculation principle" outlined in the 2012 ECB Convergence Report,[24] with the input of forecasted data for the sliding assessment year 1 April 2012 - 31 March 2013.
  5. ^ The 3 best performing countries in regards to HICP inflation were Greece (0.614%), Sweden (0.843%) and Latvia (1.567%), with no outliers detected.
  6. ^ As Greece is still part of a bailout program, and suffered from elevated interest rates significantly above the eurozone average (being 15.40% above), this country was excluded from the calculation of the reference limit for "long term interest rates", leaving just Sweden (av. rate=1.61%) and Latvia (av. rate=4.00%) as benchmark countries for the calculation of the reference value limit.

Coins of the future Hungarian euro [edit]

Hungarian euro coins have not yet been designed. When asked about the production of the euro coins in a 2010 interview appearing in Coin News magazine in the UK, Ferenc Gaál, Mintmaster replied: "Originally, we were supposed to have finished production of forint coinage in 2008. This project (the facilities of the new mint premises) was specifically planned to meet the requirements of the new euro currency which will be launched in Hungary in the future, this new facility will ensure a very smooth change-over which will also provide us with the latest technology for minting & production of euro coins. It will take us only six months to produce enough coins to change from forints to euros. All the conditions are in place for a hopefully smooth change-over. Now, we’re just waiting for the “go-ahead”!"

References [edit]

  1. ^ "About the impact of the EMU-entry.". Science Direct. Retrieved 2009-12-31. 
  2. ^ "When will we have the euro?(In Hungarian.)". Origo. Retrieved 2008-12-14. 
  3. ^ "Veres: Euro can come in 2010.(In Hungarian.)". Sulinet. Retrieved 2008-12-14. 
  4. ^ "Slovak euro application approved.(In Hungarian.)". FigyelőNet. Retrieved 2008-12-14. 
  5. ^ "Can we really have the euro first in the region?(In Hungarian.)". Menedzser Fórum. Retrieved 2008-12-14. 
  6. ^ "Crisis can make faster euro adoption.(In Hungarian.)". KEMKIK. Retrieved 2008-12-14. 
  7. ^ "Hungary to get $25.1 billion in IMF-led aid deal". Economic Times. 29 October 2008. Retrieved 2008-12-14. 
  8. ^ "Csányi: Euro adoption, anyway!(In Hungarian.)". FigyelőNet. Retrieved 2008-12-14. 
  9. ^ "Matolcsy in Luxembourg: we will keep the deficit on 3,8%.(In Hungarian.)". Hírszerző. Retrieved 2011-03-26. 
  10. ^ "Matolcsy: deficit will be under 3% in 2011.(In Hungarian.)". Index. Retrieved 2011-03-26. 
  11. ^ "Hungary May Name Euro Entry Target Date in 2012, Matolcsy Says". Businessweek. Retrieved 2011-03-26. 
  12. ^ "Varga promises euro in 2014 or 2015.(In Hungarian.)". GazdaságiRádió. Retrieved 2011-03-26. 
  13. ^ "Orbán: We won't have euro until 2020.(In Hungarian.)". Index. 5 February 2011. Retrieved 2011-03-26. 
  14. ^ "Matolcsy: Hungarian euro is possible in 2020.(In Hungarian.)". Világgazdaság. 4 March 2011. Retrieved 2011-03-26. 
  15. ^ "Orbán: We will not join the Euro Pact.(In Hungarian.)". Hírszerző. Retrieved 2011-03-26. 
  16. ^ "Hungarian public debt lowered and rose as well.(In Hungarian.)". Napi Gazdaság. Retrieved 2011-03-26. 
  17. ^ "Interest rate 5.25% by April 22, 2010". MNB. Retrieved 2010-04-27. 
  18. ^ "Homepage of the Hungarian National Bank". Hungarian National Bank. Retrieved 2013-04-30. 
  19. ^ "HICP (2005=100): Monthly data (12-month average rate of annual change)". Eurostat. 16 August 2012. Retrieved 6 September 2012. 
  20. ^ "What is ERM II?". European Commission. 31 July 2012. Retrieved 8 September 2012. 
  21. ^ "Long-term interest rate statistics for EU Member States (monthly data for the average of the past year)". Eurostat. Retrieved 18 December 2012. 
  22. ^ "Convergence Report May 2012". European Central Bank. May 2012. Retrieved 2013-01-20. 
  23. ^ a b "European economic forecast - spring 2012" (PDF). European Commission. 1 May 2012. Retrieved 1 September 2012. 
  24. ^ "Convergence report 2012". European Central Bank. May 2012. Retrieved 2013-01-15. 
  25. ^ "Government deficit/surplus data". Eurostat. 22 April 2013. Retrieved 22 April 2013. 
  26. ^ "Government debt data". Eurostat. 22 April 2013. Retrieved 22 April 2013. 
  27. ^ "Luxembourg Report prepared in accordance with Article 126(3) of the Treaty" (PDF). European Commission. 12 May 2010. Retrieved 18 November 2012. 
  28. ^ "EMI Annual Report 1994" (PDF). European Monetary Institute (EMI). April 1995. Retrieved 22 November 2012. 
  29. ^ "Progress towards convergence - Nov. 1995 (report prepared in accordance with article 7 of the EMI statute)" (PDF). European Monetary Institute (EMI). November 1995. Retrieved 22 November 2012. 
  30. ^ "Progress towards convergence - November 1995 (report prepared in accordance with article 7 of the EMI statute)" (PDF). European Monetary Institute (EMI). November 1995. Retrieved 17 March 2013. 
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