The European Union raised the stakes in a showdown with Hungary today, with the European Commission saying it would take legal action against the government over authoritarian new laws.
Prime minister Viktor Orban's conservative Fidesz party has been condemned by the international community for introducing measures that threaten the independence of the media, the judiciary and the central bank since sweeping to power in 2010.
The commision said the laws governing the central bank, the retirement age of judges and the country's data protection authority violated EU rules and needed to be changed within one month if Hungary wanted to avoid being taken to the European Court of Justice, the EU's highest court.
Failure to comply with the EU means that Hungary is also stalled in its efforts to negotiate financial assistance from international lenders as it tackles the threat of insolvency.
Talks with the International Monetary Fund on aid collapsed last year in a row with lenders over the new legislation. The IMF said Hungary must first get the EU's blessing before talks on a new financial package can start.
"The commission is determined to take any legal steps necessary to ensure that the compatibility with European Union legislation is maintained," European Commission president Jose Manuel Barroso said in a statement. "We hoped the Hungarian authorities would make the changes necessary to respect European law. This has not happened so far, so we have decided to launch the infringement proceedings."
EU officials, who are also struggling to contain a debt crisis in the euro zone, have led criticism of Mr Orban's policies. Legal proceedings against a member country's laws are rare and reflect growing fears about Hungary in European capitals.
The key problems are with a batch of new laws that came into force at the start of the year. The EU's fundamental treaty requires independence of central banks, but Hungary's new law allows a government minister to participate in key meetings, the commission said.
On the judiciary, the EU said Hungary's decision to lower the retirement age for judges and certain types of lawyer to 62 from 70 went against EU laws prohibiting workplace discrimination based on age.
Thirdly, a restructuring of Hungary's data protection authority infringed an EU rule requiring the independence of data protection supervisors.
Hungary's ambassador to the EU Peter Gyorkos played down the disagreement. "Even the most impartial and most correct partners can get into dispute," he said.
Hungary's government has said it may rework its policies but deputy prime minister Tibor Navracsics to chose to make no last-minute concessions to stop the EC beginning the proceedings.
"On the issues of central bank law and data protection we are close to possibly finding a solution in the near future ... if the aim is to further strengthen the independence of the head of the data protection authority, I will surely not oppose that," he said. "As far as the general retirement age of judges and prosecutors ... is concerned, I think there is a real professional debate on those issues."
Hungarian diplomats in Brussels made last-ditch efforts to explain their government's position. The start of the infringement proceeding would mean that Hungary must modify the disputed laws or face a potential lengthy legal battle that could end up in the European Court of Justice. This may hold up talks on financial assistance.
With its economy headed into stagnation and investor confidence ruined by ad hoc measures that included Europe's highest financial sector tax, and hefty debt payments due this year, Hungary needs a new funding deal to prevent a market crisis.
"The most negative reaction would be if the government starts disputing the procedure which in turn could seriously delay the start of the official talks regarding external financial assistance," Unicredit, an Italian bank, said in a note today.
Hungary sold more debt than planned at an auction last week, but at yields above 9 per cent, widely seen as unsustainable, while the forint is stuck on the weak side of 300 per euro after record lows hit this month on a string of ratings downgrades to "junk" debt status.
With parts of a $13 billion private pension transfer, which produced a one-off 2011 fiscal surplus, and some cash reserves still in government coffers, Hungary is under no immediate pressure to clinch a deal.
Reuters