Brussels, 30/05/2012 (Agence Europe) - On Wednesday 30 May, the European Commission suggested suspending the proceedings to freeze the payment of EU Cohesion Funding to Hungary in 2013, believing the Hungarian government has taken suitable measures to reduce the country's excess deficit. Unveiling the Commission's recommendations on each member state's budget and macroeconomic policies, Euro Commissioner Olli Rehn said that effective action had been taken in Hungary to correct the excess deficit and therefore the Commission could suggest a lifting of the moratorium on Cohesion Funding. The final decision will be taken by an upcoming meeting of EU27 finance ministers.
Rehn said the country's deficit is expected to be 2.5% of GDP this year, partially due to one-off creative accounting measures, but in addition, more permanent measures will be taken next year. At this point, the Commission is not suggesting, however, any lifting of the excess deficit proceedings against Hungary, preferring to wait until the true figures come in (rather than simply prediction) before making any such recommendation to the ECOFIN Council.
Changes in the central bank rules. On Tuesday, the Hungarian government introduced changes to the Hungarian central bank legislation that was heavily rejected by the Commission and the IMF as failing to meet European standards for independence. Changes to the law were made a precondition for the launch of talks on the financial aid requested by Hungary.
After to-ing and for-ing of correspondence, the Commission decided on 25 April not to send Hungary a reasoned opinion (warning letter) about the central bank question, believing that the country had promised to make the necessary changes.
The changes to the law were passed by 313 to 36 by the Hungarian parliament, scrapping the option of a merger of the MNB and the PSZAF in the future (the financial institutions' supervisory body), which would have watered down the power of the head of the Central Bank and damaged its independence from politicians. The requirement to inform the government in advance of items on the Monetary Committee's agenda has been scrapped.
The Monetary Committee decides on the Central Bank's interest rates at its monthly meetings. The new law removes the government's right to send a representative to Monetary Committee meetings and adjusts the procedure for sacking people from the Monetary Committee, to make the procedure acceptable to the European Central Bank. Some aspects have not been changed, but further changes are possible over the next few days (until 4 June, when the law gets final ratification from the Hungarian parliament). The Commission said a month ago that talks on the €15-20 billion loan Hungary is after from the EU and the IMF cannot start until the required changes to the Central Bank rules have been signed and sealed. (MB and SP/transl.fl)