A persistently high public deficit could scupper Hungary's chances of joining the euro zone by 2010, the president of the Hungarian central bank, Zsigmond Jarai.
Hungary has failed for a third consecutive year in 2004 to meet its public deficit target but the Socialist-Liberal government maintains it still has time to reduce the deficit to under 3.0 percent by 2008, a pre-condition for introducting the euro two years later.
Hungary joined the European Union on May 1. "If everything goes on as it went in the past two years then there's no chance to decrease the budget deficit," Jarai said at a press conference in
Budapest. "In the last two years we postponed the euro introduction by four years, so
I hope we will not continue (to do) that," he continued. "The worst the country can do is that we have a target and instead of changing the policies to achieve a target we are changing the target and this doesn't work," he said.
This is the second time in two days that the central bank has been openly at odds with the government. On Wednesday it said it would appeal against a new law enshrining significant government influence over the bank's monetary policy committee which sets interest rates.
A country seeking to qualify to use the single currency must ensure indepence of its central bank. In any case, once in the euro zone, monetary policy is detrmined by the European Central Bank in Frankfurt.
In September the government revised upwards its deficit target for year-end 2004 from 4.6 percent to between 5.0 to 5.3 percent of GDP. The central bank believes the deficit could top 5.6 percent by December. In 2003, the deficit was 6.1 percent compared to the original forecast of
4.8 percent of GDP, which led to the sacking of then-finance minister Csaba Laszlo in January this year.
Jarai said Hungary's failure to meet the pre-conditions for the introduction of the euro could cause uncertainty in the Hungarian markets. "The real danger is that if even the 2010 euro introduction will be questioned by the market ... that could create big uncertainties about the
exchange rate and Hungarian investments," he said. The government has said it is committed to introducing the euro by 2010 and would make even bigger budget cuts in the coming years to reduce the deficit to between 4.5 and 4.7 percent of GDP year-end 2005 and to below 3.0 percent in 2008.
By: N. Peter Kramer
