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Hungary and the euro

File:Eurozone participation.svg
Eurozone participation
  19 European Union member states in the eurozone
  7 European Union member states not in ERM II but obliged to join once convergence criteria are met
  1 European Union member state in ERM II, with an opt-out (Denmark)
  1 European Union member state not in ERM II, with an opt-out (United Kingdom)
  4 non-European Union member states using the euro with a monetary agreement (Andorra, Monaco, San Marino and Vatican City)
  2 non-European Union member states using the euro unilaterally (Kosovo and Montenegro)

While the Hungarian government has been planning since 2003 to replace the Hungarian forint with the euro, as of 2014, 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] although György Matolcsy said they did not want to give up the country's independence regarding corporate tax matters.[2]

Adopting the euro

Under the socialist governments between 2002 and 2010

Hungary originally planned to adopt the euro as its official currency in 2007 or 2008.[3] Later 1 January 2010 became the target date,[4][5] but that date was abandoned because of an excessively high budget deficit, inflation, and public debt. For years, Hungary could not meet any of the Maastricht criteria.[6] After the 2006 election, Prime Minister Ferenc Gyurcsány introduced austerity measures, causing protests in late 2006 and an economic slowdown 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 might adopt the euro in 2013, but more feasibly in 2014,[7] or later, depending on Eurozone crisis developments. On 8 July 2008, the 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.[8] Hungary received aid from the International Monetary Fund, the European Union and the World Bank.[9] In October 2008 the head of Hungary's largest bank called for a special application to join the eurozone.[10]

Ferenc Gyurcsány ran out of political capital in March 2009 to accept necessary measures.[clarification needed] The exchange rate reached 317 forints to one euro on 6 March. Gyurcsány initiated a constructive motion of no confidence against himself on 21 March and nominated Minister for Development and economist Gordon Bajnai as his replacement. The socialist and liberal parties accepted him as the new prime minister with an interim government for one year from 14 April. Bajnai's premiership brought new austerity measures in Hungary. Thus, they may[clarification needed] keep the deficit under 4% in 2009 and the 2010 Budget calculations assumed 3.8%. The inflation outturn was near 3% as a result of the crisis, but because of the increase in VAT, it averaged 5% in the second half of the year. Because of the IMF loan, the public debt rose to nearly 80%. The central bank interest rate fell to 6.25% from 10.5% in 2009. The Bajnai government could not lead Hungary into the ERM-II, and it stated that it had no plans to do so.

Under the conservative government from 2010

The centre-right soft eurosceptic Fidesz won enough seats in the 2010 Hungarian parliamentary election to form a government on its own. 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 at 3.8%.[11] After more pressure, in September they also accepted a reduction of 3% in 2011.[12] In 2010, Finance Minister György Matolcsy said they would discuss euro adoption in 2012.[13] Mihály Varga, another member of the party, talked about possible euro adoption in 2014 or 2015.[14]

However, in February 2011, Prime Minister Viktor Orbán made clear that he does not expect the euro to be adopted in Hungary before 2020.[15] Later, Matolcsy also confirmed this statement.[16] Orbán said the country was not yet ready to adopt the currency and they would not discuss the possibility until the public debt reached a 50% threshold.[17] The public debt-to-GDP ratio was 81.0% when Orban's 50% target was set in 2011, and it is currently forecast to decline to 73.5% in 2016.[18]

In 2011, experts said that the earliest date that Hungary could adopt the euro was 2015.[19]

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 chose 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.[2] As the Euro Plus Pact does not feature any legal obligations - but only commitments to use various sets of voluntary tools to improve employment, competitiveness, fiscal responsibility and financial stability - joining this pact would not lead to a requirement for Hungary to abandon their current corporate tax method.

In April 2013, Viktor Orbán proclaimed euro adoption would not happen until the Hungarian purchasing power parity weighted GDP per capita had reached 90% of the eurozone average.[20] According to Eurostat, this relative percentage rose from 57.9% in 2004 to 62.1% in 2013.[21][22] If the same pace of "catching up" progress was to be expected in the future (as in the past nine years), Hungary would only reach Orban's 90% target and adopt the euro in 2073. Shortly after Orbán had been re-elected as Prime Minister for another four-year term in April 2014,[23] the Hungarian Central Bank announced that they planned to introduce a new series of Forint bank notes in 2018.[24] No official target date has been set for euro adoption.

Public opinion

According to a eurobarometer poll in April 2014, 64 per cent of Hungarians are in favor of introducing the euro while 30 per cent are opposed.[25]

The Maastricht criteria

Further information: Convergence criteria

Inflation

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 to 2.9%, but in the end it was above the Maastricht criteria in 2009. The annual inflation was 0.9% in October 2013.

Budget deficit

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 was planned to be 3.9% in 2009, but was ultimately above 4%. The 2010 budget planned 3.8%, but it also went over 4%. Hungary's general government deficit, excluding the effect of one-off measures, was 2.43% of GDP in 2011, lower than the 2.94% target and under the 3% threshold for the first time since 2004. Hungary recorded a budget deficit of 1.9% in 2012, well below previous expectations. The budget deficit is expected to be under the 3% threshold in 2013 as well.[26]

Public debt

Public debt accounted for 80.1% of GDP in 2010,[27] above the 60% target. However, the EU might accept a Hungarian public debt which declines for at least 2 years.

Interest rate

The central bank's interest rate was raised by 3% to 11.5% in October 2008, because of the crisis. However, then it was lowered consecutively 14 times till April 27, 2010 down to 5.25%. Then it was raised 5 times till December 21, 2011 up to 7%. Since then the rate has declined 21 times, as of April 2014 the interest rate is 2.50% [28]

ERM-II membership

As the conservative government in 2013 does not plan to adopt the euro until 2020, there is no discussion about a possible ERM-II membership.

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Coins of the future Hungarian euro

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

  1. ^ "About the impact of the EMU-entry.". Science Direct. Retrieved 2009-12-31. 
  2. ^ a b "Orbán: We will not join the Euro Pact.(In Hungarian.)". Hírszerző. Retrieved 2011-03-26. 
  3. ^ "When will we have the euro?(In Hungarian.)". Origo. Retrieved 2008-12-14. 
  4. ^ "MET – Magyarországi Európa Társaság – On the Introduction of the Euro in Hungary: Let’s Stick to 2010!". Europatarsasag.hu. Retrieved 26 April 2011. 
  5. ^ "Veres: Euro can come in 2010.(In Hungarian.)". Sulinet. Retrieved 2008-12-14. 
  6. ^ "Slovak euro application approved.(In Hungarian.)". FigyelőNet. Retrieved 2008-12-14. 
  7. ^ "Can we really have the euro first in the region?(In Hungarian.)". Menedzser Fórum. Retrieved 2008-12-14. 
  8. ^ "Crisis can make faster euro adoption.(In Hungarian.)". KEMKIK. Retrieved 2008-12-14. 
  9. ^ "Hungary to get $25.1 billion in IMF-led aid deal". Economic Times. 29 October 2008. Retrieved 2008-12-14. 
  10. ^ "Csányi: Euro adoption, anyway!(In Hungarian.)". FigyelőNet. Retrieved 2008-12-14. 
  11. ^ "Matolcsy in Luxembourg: we will keep the deficit at 3,8%.(In Hungarian.)". Hírszerző. Retrieved 2011-03-26. 
  12. ^ "Matolcsy: deficit will be under 3% in 2011.(In Hungarian.)". Index. Retrieved 2011-03-26. 
  13. ^ "Hungary May Name Euro Entry Target Date in 2012, Matolcsy Says". Businessweek. Retrieved 2011-03-26. 
  14. ^ "Varga promises euro in 2014 or 2015.(In Hungarian.)". GazdaságiRádió. Retrieved 2011-03-26. 
  15. ^ "Orbán: We won't have euro until 2020" (in Hungarian). Index. 5 February 2011. Retrieved 26 March 2011. 
  16. ^ "Matolcsy: Hungarian euro is possible in 2020.(In Hungarian.)". Világgazdaság. 4 March 2011. Retrieved 2011-03-26. 
  17. ^ "Matolcsy: Hungarian euro is possible in 2020" (in Hungarian). Világgazdaság. 4 March 2011. Retrieved 26 March 2011. 
  18. ^ "European Economic Forecast Spring 2015 - 17.Hungary" (PDF). European Commission. 5 May 2015. 
  19. ^ "Ungarn: Euro-Einführung noch nicht absehbar – Wirtschaft in Ungarn". Balaton-zeitung.info. 1 December 2009. Retrieved 26 April 2011. 
  20. ^ "Orbán: Hungary will keep forint until its GDP reaches 90% of eurozone average". All Hungary Media Group. 26 April 2013. 
  21. ^ "GDP per capita - annual Data - at purchasing power parity: [nama_aux_gph]". Eurostat. 8 September 2014. 
  22. ^ "GDP per capita - annual Data [tec00114]: purchasing power parity". Eurostat. 1 December 2014. 
  23. ^ "Hungary election: PM Viktor Orban declares victory". BBC. 6 April 2014. 
  24. ^ "Hungary’s New Notes Speak of Late Conversion to Euro". The Wall Street Journal. 1 September 2014. 
  25. ^ http://ec.europa.eu/public_opinion/flash/fl_400_en.pdf
  26. ^ "Portfolio.hu". 
  27. ^ "Hungarian public debt lowered and rose as well.(In Hungarian.)". Napi Gazdaság. Retrieved 2011-03-26. 
  28. ^ "Hungarian National Bank Interest rate". Hungarian National Bank. Retrieved 2013-12-09.