Hungary's forint, stock market fall

Hungary's currency fell sharply against the euro on Monday following the collapse of talks between Budapest and the International Monetary Fund and the EU over the country's deficit situation.

The forint drooped 3.2 percent against the euro to 291.38 forints after the EU and IMF called off their review of Budapest's 20 billion bail-out, originally agreed in 2008 over the weekend, frustrated with the government's push for more spending leeway.

Further endangering market confidence, the country's economy minister, Gyorgy Matolcsy, said on Hungarian television that tightening the country's austerity programme was "out of the question" if Hungary was to return to economic growth.

"More remains to be done to cement these gains and put Hungary on a b and sustainable growth path," the IMF said on the weekend. "Additional measures will need to be taken to achieve these objectives."

Mr Matolcsy suggested talks with Brussels and Washington could resume in the Autumn.

On Monday, commission spokesman Ton van Lierop told reporters that there were "no direct, imminent consequences" for Hungary at this stage.

The country's centre-right leader Victor Orban had promising a lightening of the draconian austerity measures imposed by his Socialist predecessors, which had cut the country's deficit from 9.3 percent of GDP in 2006 to 3.8 percent two years later .

After the elections however, Mr Oban said that the country's economic and fiscal situation was much worse than the previous government's pronouncements had suggested and announced that he would indeed have to impose stringent austerity measures of his own.

However, with an eye over their shoulder at the far-right Jobbik party's growing popularity, the prime minister's Fidesz party is politically constrained in terms of how much austerity can be implemented without a collapse in the party's support, as happened to the Socialists after their own austerity programme was announced.

The government wants the EU-IMF to cut it some slack for 2011 spending after agreeing to tighten its belt this year.

But the commission and the IMF feel this to be inadequate.

[Source: By Leigh Phillips, Euobserver, Brussels, 20Jul10]

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