Books on Hungary
Update No: 119 - (30/04/07)
In Hungary the government is unpopular and the PM
is despised as a self-confessed liar. But it and him are likely to survive.
While he admits the economy is in a mess, with the highest public deficit in
Europe at around 10% of GDP last year, the opposition do not appear to fancy
clearing the mess up. Let its perpetrators do that, the ex-communist socialists,
who went on irresponsible spending sprees, that got them re-elected last spring.
Hungary to adopt the euro between 2010 and 2014: PM
Mr Gyrucsany has made a priority of reforming Hungary's public finances, after
the budget deficit ballooned under successive governments. With the economy
growing strongly, the government this week cut its 2007 deficit target to 6.6
per cent, down from last year's 10.1 per cent.
But it leaves the country with the highest deficit ratio in the European Union
and far above the 3 per cent level required for joining the euro, which Hungary
wants to do in 2010-14. Mr Gyurcsany said the budget needed further attention.
"We need a very disciplined budget but we don't need any more austerity
Hungary's prime minister told a monetary conference on April 19th that his
country will be able to enter the euro zone by 2014, after it has met all
targets of its newly submitted convergence plan.
Speaking at a "Path to the Euro" conference co-organized by the
finance ministry and Hungary's Central Bank, Ferenc Gyurcsany was optimistic the
country will switch to the euro currency between 2010 and 2014."It's in
Hungary's interest to adopt the euro and it wants to adopt the euro,"
Gyurcsany said. "The convergence plan creates the opportunity (to do so)
between 2010 and 2014."
Gyurcsany said that in past years meeting convergence targets and keeping
economic balance and competitiveness had played only a secondary role in policy.
In recent months, however, the premier underlined a change of his country's
"We see the end of the tunnel but have yet lots to do in order to get
there," state news agency MTI quoted Gyurcsany as saying.
Gyurcsany also said he supported an independent budgetary department to work
more effectively toward the euro-zone goal.
After posting the European Union's largest relative budget deficit in 2006, at
10.1 percent of gross domestic product, the government cut its 2007 budget gap
from a targeted 6.8 percent to 6.6 percent.
Finance Minister Janos Veres - also attending the conference - said earlier that
adjustments were made based on "trends that were better than expected and
more favourable than forecast." Veres said higher tax revenues, smaller
interest expenses and higher pension payments have made the positive adjustments
Experts have forecast Hungary would be unlikely to be ready to adopt the euro
until 2015, due to its large public deficit and high inflation, expected to come
near to 9 percent this year. The budget gap is planned to be cut to 4.3 percent
of the GDP in 2008 and 3.2 percent in 2009, near the maximum level of 3 percent
for countries using the euro.
May 1 will mark Hungary's three-years of EU membership.
Hungary moves closer to ending healthcare dispute
Health care is a political minefield in Hungary; but it has to be tackled.
Gyurcsany has pledged to end a long-running political dispute over controversial
plans to reform healthcare financing and negotiate an acceptable package by the
end of the year.
"I would like to reach a policy agreement in the first half of the year and
finalise negotiations in the second half of the year," said Mr Gyurcsany in
a meeting with journalists in London in April.
The Hungarian prime minister's difficulties mirror those faced by health
reformers elsewhere in ex-Communist central Europe, where people are loathe to
lose the free health services they enjoyed before 1989.
Mr Gyurcsany's comments were addressed principally at his Socialist party, the
leading force in the coalition government, and the Free Democrats, the liberal
junior partner, which have been quarrelling for months over the reforms.
The Free Democrats want to end the state's near-monopoly of healthcare
financing by introducing competition and permitting private insurance companies
to manage health insurance contributions. But many Socialist party members are
fighting to retain the state's dominant role, partly out of concern that
privatising healthcare financing, even in part, could create a bigger gap in the
health care provision between rich and poor.
Mr Gyurcsany avoided committing himself to a particular form of healthcare
finance, saying different approaches worked in Europe, ranging from Sweden's
state-dominated model to the market-oriented Dutch system. However, he said the
question was important to the Free Democrats and he understood their arguments.
The Free Democrats are preparing for another push on the issue by putting
forward Agnes Horvath, a reform-advocate, as health minister, following the
resignation two weeks ago of Lajos Molnar, who quit over Mr Gyurcsany's refusal
to support a competitive multi-player insurance system. The Free Democrats said
they would remain committed to this option, though Ms Horvath has signalled a
willingness to compromise.
In health care, the government has this year faced down opposition and
introduced charges for doctors' visits and prescription medicines and cut drug
Healthcare reform remains a political minefield in the ex-Communist states of
central Europe. Reformers want to avoid the experience of Slovakia where the
centre-right government of Mikulas Dzurinda implemented rapid changes in 2003-4
- including the introduction of charges and private health insurers - only to
lose last year's parliamentary elections.
The new centre-left administration has since partly rolled back the reforms. In
Poland too, wholesale reforms in healthcare financing pushed through in
1999-2001 were later revised and diluted. Mr Gyurscany's insistence on
negotiation and compromise shows that he too is intensely aware of the political
dangers of healthcare reforms.
Baumit plans to increase revenues 3-5% in 2007
One of Hungary's largest construction material companies, but Austrian-owned,
Baumit is planning to boost sales revenues by three to five per cent this year,
as a slowdown in Hungarian new home construction is offset by an ongoing home
renovation boom, Managing Director, Gabor Debreczeni, said, Interfax News Agency
"We are seeing three to five per cent growth on the construction material
market, and we will be able to match that," Debreczeni said, adding:
"New construction permits in Hungary are down because state policies are
not new-home-friendly, but home renovation subsidies are presenting an
opportunity of growth."
Baumit, owned by Austria's Wopfinger Beteiligungs GmbH Schmid & Co, recorded
sales revenues of 10.2 billion forints in 2006, up from 8.2 billion forints in
The company's main product line is plaster, mortar and building insulation
materials, which Debreczeni said is increasing demand, as homeowners are
eligible for state subsidies to renovate apartments in Socialist-era concrete
housing blocks, which currently have very low energy efficiency. The company
also supplies special plaster used in restoring facades of classic city
buildings, many of which are now being turned into office complexes.
At the same time, Baumit has suffered from the gradual tightening of state
subsidies on housing loans in recent years, which has resulted in an 18 per cent
year-on-year drop in new home completions last year, along with a 13 per cent
drop in new building permits.
For this reason, even as a home renovation boom is underway, Baumit is unlikely
to build new manufacturing capacities in Hungary in addition to its three
"The current rate of market expansion does not necessitate additional
capacities," Debreczeni was quoted as saying, adding: "Because prices
in these product categories are dirt cheap, we're not making that much profit
and therefore need to be cautious in deciding whether to invest."
Debreczeni declined to disclose profit figures for Baumit, noting only that the
profitability of the Hungarian unit was not as strong as that of other
subsidiaries across the region. Profitability has also been depressed by an
"extreme rise" in cement prices recently, which the company may not be
able to fully pass on to customers, Debreczeni added.
Baumit employed 168 workers at the end of 2006, and has invested five billion
forints in Hungary since its foundation in 1990.
Moody's lowers debt and deposit ratings of 44 banks
Following the refinement of its bank rating methodology, financial investors
service Moody's has lowered the debt and deposit ratings of 44 banks, including
three Hungarian financial institutions, the agency recently announced, Interfax
News Agency reported.
Among downgraded banks were Hungary's largest bank OTP, whose ratings were
lowered by two notches, along with its mortgage arm OTP Jelzalogbank, while the
bank's Slovakian unit OTP Banka Slovensko saw its ratings cut by one notch. As a
result, OTP Bank's and OTP Jelzalogbank's ratings were lowered to Aa3 from Aa1,
and OTP Banka Slovensko's ratings were cut to A2 from A1.
The other two affected Hungarian banks were GE Capital's Budapest Bank, whose
ratings were lowered by one notch from Aa3 to A1, while Belgian KBC's local unit
K&H Bank suffered a two-notch downgrade from Aa1 to Aa3. Moody's said the
refined ratings methodology incorporates joint default analysis (JDA). The
refined methodology reduces the level of external support incorporated into bank
deposit and debt ratings in order to give greater weight to intrinsic financial
Energy agency calls on Hungary to diversify gas supplies
Claude Mandil, the head of the International Energy Agency, on April 3rd
called for Hungary to diversify its sources of gas, which currently come largely
from Russia. Hungary, which receives 80 per cent of its gas from its former
overlord, was one of the countries most affected by the gas outages in January
2006, which occurred when Russian gas deliveries through Ukraine were disrupted.
Since then, the government has been pursuing three different routes to ensure
there is no repeat of such events, and Mandil said that it would be wise to
continue down this path, Deutsche-Presse-Agentur (dpa) reported.
One of the options has proven to be controversial, however, drawing fire from
the EU and domestic sources alike.
Hungary's gas behemoth MOL has agreed to team up with Russia's Gazprom on
extending the Blue Stream pipeline, which carries gas across the Black Sea to
If the plan is carried out, the pipeline would extend into Europe. MOL has also
agreed to cooperate on building a 10-billion-cubic-metre storage facility in
However, the Blue Stream pipeline is seen as a rival to the EU-backed Nabucco
pipeline, which aims to cut the dependence on Russian gas by bringing in Middle
Eastern gas through Turkey.
Hungarian Prime Minister, Ferenc Gyurcsany, has faced accusations of undermining
the Nabucco pipeline by backing the Blue Stream project.
At home, the leader of the main opposition party Fidesz has accused Gyurcsany of
inviting the nation's former communist rulers back into the country.
MOL and Gyurcsany have refused to rule out the possibility of buying into both
pipelines, although both have criticised the Nabucco project for taking too long
to get underway.
There has also been talk of building a pipeline from Croatia to bring gas in
from a Liquefied Natural Gas terminal set up on the shores of the Adriatic.
Papoulias visits Hungary, discusses bilateral ties
Greek President, Karolos Papoulias, paid a three-day visit to Hungary recently,
New Europe reported.
Papoulias, who was accompanied by Defence Minister, Evangelos Meimarakis, and
Deputy Foreign Minister, Evripidis Stylianidis, was welcomed by local residents,
whom he said "we are pleased because you have also overcome one of the most
tragic pages in modern Greek history." Papoulias also visited the National
Gallery in Budapest and met with representatives of Hungarian opposition
parties, while on the third and last day of his visit he is due to tour the Lake
Balaton region. Meanwhile, Stylianidis inaugurated a Greek-Hungarian business
forum on March 28th.
Plans to open more investment to South Korean firms
Hungarian Foreign Minister, Kinga Goencz, was cited as saying in Seoul recently
that the country is due to create more investment opportunities for South Korean
firms, Deutsche Presse-Agentur (dpa) reported.
Goencz assured South Korean President, Roh Moo Hyun, that South Korea was a
"key partner" for Hungary in Asia, Roh's office reported. Budapest in
addition had an interest in supporting the exchange of people from both
countries. For his part, Roh said the steps that the Hungarian government had
already taken to enable Korean companies to expand in Hungary were
"instrumental in improving substantive collaboration." According to
South Korean news agency Yonhap, the estimated volume of investment of South
Korean firms in Hungary is currently at around US$ eight billion. Roh also noted
that Goencz after her arrival for a three-day visit last week was the first
foreign minister of a third country to visit the inner-Korean industrial part in
the North Korean border city of Kaesong. The Kaesong visit contributed to peace
and stability on the Korean peninsula, Roh was cited as saying.