Hungary deal 'may be done by March'

Mon, Jan 23, 2012, 00:00

Hungary could secure a new funding deal worth around €17-20 billion with international lenders by March or April, a top government official said on Monday as economic sentiment in the emerging European economy plunged to a two-year low.

Prime minister Viktor Orban's government is struggling to repair tattered ties with the European Union so it can secure a credit lifeline from it and the International Monetary Fund and stave off potential insolvency.

The European Commission has piled pressure on Mr Orban since the start of the year after his administration passed laws on media, the courts and the central bank that Brussels and other critics say undermine their independence and breach EU rules.

The EU and IMF have told Hungary to change what is seen as the biggest stumbling block, the central bank law, as a prerequisite to talks on any loan package.

Mr Orban, dubbed "the Viktator" by critics who fret over his efforts to centralise power, has said his government would rework several laws but the decision would be up to parliament, which his Fidesz party controls.

Financial markets are looking for proof that Mr Orban is serious, particularly after thousands of Hungarians marched in support of his policies on Saturday. He said the cabinet would work out the details by today, a day before he heads to Brussels to meet European Commission president Jose Manuel Barroso.

When asked if media estimates that the package could be for up to €20 billion, Mr Orban's state secretary Mihaly Varga said they were probably not far off. He added he did not expect the EU and IMF to demand the government change one of its policy cornerstones, a flat tax it has enshrined in an overhaul of the constitution that came into force on January 1st.

"I would be surprised if the EU or IMF had objections to (the flat tax) or would regard it as a precondition," Mr Varga said.

The commission launched infringement procedures against Budapest last week, zeroing in on the central bank law, which allows for the merger of the bank with the financial regulator and lets Mr Orban name a third deputy governor among other changes.