WRAPUP 3-Hungary signals IMF deal over; EU goal in question

* Prime minister signals no new IMF deal

* Orban wants to renegotiate EU budget goals

* Calls for “equal treatment” for all EU states

* Parliament passes bank tax as expected

By Gergely Szakacs and Krisztina Than

(Adds parliament decision on bank tax, Bank Association)

BUDAPEST, July 22 (BestGrowthStock) – Hungary’s prime minister
signalled on Thursday that he would not renew a deal on an IMF
safety net and would row back on a commitment to cut the budget
deficit to European Union-prescribed levels next year.

The comments from Viktor Orban, who took power in May with
the largest majority in Hungary’s post-communist history, were
the latest in a string of statements that have stunned markets
and confounded a Europe-wide push towards spending cuts.

Orban, who has shunned outside economic advice in favour of
a domestic agenda, has pledged to end the belt-tightening
pursued by the previous Socialist government. His eye appears to
be clearly on Oct. 3 municipal elections, where he can
consolidate his party’s grip on Hungarian politics.

Analysts said his centre-right Fidesz cabinet’s rejection of
more austerity measures in favour of a “pro-growth” policy
including a tax on banks and possibly other businesses might be
softened after the municipal vote.

But Orban has spurned warnings that Hungary could face
market pressure and currency weakness without support from its
lenders, and said the 20 billion euro ($25 billion) EU and
International Monetary Fund aid deal would expire in October.

He said Hungary would meet its budget target under the
agreement but the issue of a new safety net was “insignificant”
in light of more important negotiations with the EU about how
Hungary would bring its budget deficit below 3 percent of GDP.

And in a move that could indicate a delay in budget
consolidation, he called for all EU states to follow the same
timeframe to reach the bloc’s prescribed deficit limit of 3

Some members may not achieve it until at least 2014.

“We will have a single demand, namely that of equal
treatment, that is, the same timeframe must be set for all to
meet the EU’s expectation,” Orban said.

The EU and IMF suspended talks over the bailout package on
Saturday after Fidesz refused to abandon the bank tax, which the
Fund says will squeeze lending and hamper growth. It had called
for deeper structural reforms.

Under Hungary’s convergence plan submitted to the EU, it
agreed to cut its budget deficit to 3 percent by 2011 from a
target of 3.8 percent this year.

The IMF said on Thursday it was ready to resume negotiations
with Hungary.

Calling for “terms the Hungarian people deserve” and for the
country of 10 million to “restore (its) lost economic
sovereignty”, Orban presented a bill to parliament that aims to
glean 200 billion forints ($892.4 million) from a tax on banks
both this year and in 2011.

As expected, the law was passed, including the new financial
sector tax and a cut in the central bank governor’s salary, with
301 votes in the 386-seat parliament. [ID:nBUD005422]

Hungary’s Banking Association chief Tamas Erdei told Reuters
the special bank tax could drive eight to 10 banks into the red
this year and should be phased out by 2012. [ID:nLDE66L23P]


Emboldened by his election victory and austerity fatigue
among voters, Orban has shown little of the contrition expressed
by leaders in economically troubled Romania, Latvia, and other
formerly communist EU states worst hit by the global crisis.

His approach has spooked investors already rattled by
problems in the euro zone periphery and the threat of a
double-dip recovery, although Thursday’s reaction was mixed.

The forint, which plunged more than 3 percent on Monday to
around 292 versus the euro — levels last seen in May 2009 —
had climbed back to 283.80 by 1414 GMT on Thursday.

The Finance Ministry sold all the bills it had put on offer
at a 12-month treasury bill auction, but yields rose, indicating
that markets remained skittish.

Hungary is in no danger of default and has managed to put
its finances back in order since first having to grab the EU/IMF
lifeline in 2008.

And Orban said that, with one of the EU’s lowest budget
deficits, Hungary could hit the 3 percent of GDP budget deficit
level more easily than other EU states, which would strengthen
Budapest’s credibility in markets.

Analysts, however, have said Orban’s conflicting messages to
domestic and international audiences have bruised his image in
the eyes of investors.

“At the moment, the market is buying into the idea that he
is posturing, given domestic political pressure,” said Imran
Ahmed, emerging FX strategist at RBS.

“The hope is that ultimately … he’s fully aware of how
dependent Hungary is on external market support … if the IMF
and Hungary can’t reach an agreement and we still continue to
get this uncertainty, markets could get quite brutal.”

Hungarian media said Fidesz could also enact a special tax
on telecoms and power firms. Economists say that might put the
2010 budget goal in reach but could hinder growth, undermine job
creation and postpone vital structural reforms.

They say the bold attitude could backfire, as the EU would
not enter new aid talks without the IMF and it could also slap
Fidesz with sanctions for policies such as undermining the
independence of its central bank.

“The risks to Hungary are great if global risk sentiment
turns,” said Nomura strategist Peter Attard Montalto.

Stock Basics
(Additional reporting by Gergely Szakacs; writing by Michael
Winfrey; editing by Andrew Roche)

WRAPUP 3-Hungary signals IMF deal over; EU goal in question