The European Bank for Reconstruction and Development (EBRD) warned on Tuesday that the danger of investor flight and asset sales due to Budapest’s inflexibility in the dispute with international lenders over fiscal reform and the bank tax could spread to the entire region.
"The case of Hungary involves the risk of contagion to other Eastern European countries, which can still protect themselves to the extent that they continue to implement reforms and restructuring," said EBRD President Thomas Mirrow in an interview with the Düsseldorf business daily Handelsblatt."I believe that the Hungarian government will reach an agreement with the International Monetary Fund in the coming weeks," he added.
However, the Hungarian government is currently not signaling that it is ready to abandon the bank tax, which is set to be voted on in parliament this week. With this tax, Budapest intends to collect 200 billion forints this year and next. The IMF and the EU have told Budapest that it must cut spending to reduce the budget deficit to 3.8 percent this year and to 3.0 percent of GDP next year.
The forint stabilized after it plunged more than three percent against the euro on Monday following the announcement of the suspension of negotiations between the Hungarian government and international lenders regarding new tranches of loans conditioned on the improvement of Hungary’s public finances. The government raised 35 billion forints at a three-month treasury bill auction, instead of the planned 45 billion. The total value of bids amounted to 52.5 billion forints, and the average yield jumped to 5.47 percent, up from 5.28 percent in March. (H)
