Hungary Given Euro Warning

Hungary risks missing its 2010 target for adopting the euro unless its government reduces the budget deficit and improves policy co-ordination with the central. This at least is the view of the OECD as expressed in its annual report on Hungary out today. According to the OECD:

the key conclusion is that further reductions in the general government deficit have to come about through spending cuts because of the already high level of taxation. Failure to reach deficit targets have damaged credibility in the recent past and the Chapter discusses ways of providing more realistic budget targets, more transparent fiscal planning, better assessment of progress over the budget year and improved estimation of outcomes.

I can think of two pertinent questions to put to the authors of the report: will the euro still be around by the time we get to 2010 (in its present form, I doubt it), and if it is, are they sure that it’s a good idea (looking at what has happened eg to Portugal, Greece and Italy) for Hungary to join.

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About Edward Hugh

Edward 'the bonobo is a Catalan economist of British extraction. After being born, brought-up and educated in the United Kingdom, Edward subsequently settled in Barcelona where he has now lived for over 15 years. As a consequence Edward considers himself to be "Catalan by adoption". He has also to some extent been "adopted by Catalonia", since throughout the current economic crisis he has been a constant voice on TV, radio and in the press arguing in favor of the need for some kind of internal devaluation if Spain wants to stay inside the Euro. By inclination he is a macro economist, but his obsession with trying to understand the economic impact of demographic changes has often taken him far from home, off and away from the more tranquil and placid pastures of the dismal science, into the bracken and thicket of demography, anthropology, biology, sociology and systems theory. All of which has lead him to ask himself whether Thomas Wolfe was not in fact right when he asserted that the fact of the matter is "you can never go home again".

3 thoughts on “Hungary Given Euro Warning

  1. This is old news. But then the OECD is frequently “behind the curve”.

    Joining the ?uro is not something most people here I have spoken to are averse to – Hungarians don’t appear to be quite so emotionally attached to their currency as say the British. What is going to be a problem is the austerity measures required to meet the criteria ….. I have posted on this before numerous times. Personally I think Hungary and indeed the other new member states would be advised to stay out – they cannot legally “opt out”, but they can consistently break the criteria which achieves much the same result.

  2. Your point about euro joining not being in the interests of Hungary is a valid one. What surprised me more was saying “will the euro still be around by the time we get to 2010”. How do you think it wil change? While we may whine about it now, I don’t think it will go away in the near future. The euro will remain simply because it signifies progress, and it’s a very hard decision to abolish such an important symbol that Europeans have been aspiring to for years, despite the temporary economic costs. It would be a big blow, even if only symbolic, to the whole concept of European integration.

  3. “How do you think it wil change?”

    Sorry I didn’t get back to this sooner Mihai, holidays and all that. Basically you need to read around my posts on Italy. I don’t see Italy being able to seriously address its problems inside the euro. Italy may *need* to reintroduce the Lira and do a sovereign debt default. After that everything will change.

    The interesting question is what would the German government do if Italian politicians tried to do a runner, and left Germany effectively holding the can. This could tip the arguments back towards the Deutschmark, but this is hard to see.

    Maybe I should have said “will the euro still be around in the form we know it now by the time we get to 2010”. But nothing here is either guaranteed or excluded. We watch and wait.

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