Hungary could face bailout freeze, legal action
Published 04 January 2012
An EU official warned yesterday (3 January) that talks with Hungary over emergency funding could be frozen and the country faces possible legal action if its controversial new constitution breaches European treaties.
The new constitution entered into force on 1 January, accompanied by legislation which critics say undermine the independence of the central bank, the judiciary and the media - and entrench the position of Prime Minister Viktor Orbán's ruling Fidesz party which is affiliated with the European People's Party.
Tens of thousands of people protested in Budapest on Monday (2 January) alleging that the new laws are authoritarian.
Commission President José Manuel Barroso and Orbán exchanged a series of letters at the end of December in which Barroso warned the prime minister not to jeopardise the independence of the Bank of Hungary, and re-iterated concerns about media independence.
Constitution under scrutiny
Commission spokesman Olivier Bailly said: “We received translations of the new constitution this morning [3 January], and our legal experts are examining them to assess whether our concerns have been addressed.”
An assessment is likely before the end of the week, he said.
In November, Hungary asked for €20 billion in 'precautionary aid' from the EU and the International Monetary Fund (IMF), saying it was seeking "a kind of insurance policy" against possible future financing difficulties.
Informal talks between Budapest, the IMF and the Commission with a view to offering the country a financial bailout broke down in mid-December, as Hungary indicated it was about to change the laws regarding the independence of its central bank.
Hungary urgently needs the money to maintain access to international capital markets this year; it needs to refinance €4.8 billion of debt in the coming months.
Fresh talks are scheduled between Hungary, the IMF and the Commission in Washington on 11 January and in Budapest on 16-19 January.
But an EU official said: “We will not be going to Budapest if the implementation of the new rules causes a loss of independence to the Bank of Hungary.”
Legal action possible
“The governor [of the Bank of Hungary] cannot be subservient to a government appointee, that would effectively reduce him to a vice president without independence, with a commissar above him,” the official emphasised.
The Commission hopes that the threat to its bail out will be enough to persuade Orbán to satisfy its concerns, but is simultaneously brandishing a threat of infringement proceedings.
In a letter to Orbán on 28 December, Barroso warned that the Commission will pursue infringement action against Hungary if its new constitution breaches treaty provisions, according to an EU official.
Such legal action could be sanctioned as early as next week after the year's first College of Commissioners meeting on 11 January, he said.
Meanwhile, Index.hu, a Hungarian information service with close government links, yesterday said that the government in Budapest wanted to use the Bank of Hungary's reserves to service public debt and launch economic recovery measures.
Reuters reported that the Hungarian government wants to use around 180 billion forints (€570 million) from the bank's reserves to service local authority debts accumulated last year.
POSITIONS:
"Viktor Orban and his servants turned Hungary from a promising place to the darkest spot in Europe," said Hungarian Socialist MP Tibor Szanyi, quoted by AFP news agency.
"Despite political debates we think it is an important value that for the first time, a freely elected parliament created the Basic Law," said Fidesz MP Gergely Gulyas, who co-wrote the new law and shepherded it through parliament.
“The silence on the situation from the European Peoples Party (EPP), who count FIDESZ as a full member, is becoming deafening, according to the Party of European Socialists' (PES) general secretary, Philip Cordery. “The PES calls on the EPP to suspend FIDESZ from its ranks until such time as Hungarian democratic institutions regain their independence and their integrity.”
