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     EU Eurozone (16)      EU states obliged to join the Eurozone (9)      EU state with an opt-out on Eurozone participation (1 - UK)      EU state planning to hold a referendum on the euro (1 - Denmark)      States outside the EU with issuing rights (3)      Other non-EU users (4)   

Hungary can replace its currency, the forint earliest most likely on 1 January 2014, depending on its economic performance. (However, some economists are calculating with a 2013 entry.) Currently, there is no target date and the forint is not part of ERM II. Analysts think that Hungary can join ERM II in 2010 or 2011 and so it may adopt the euro in 2013, but more feasibly in 2014[1]. On 8 July 2008, then-Finance Minister János Veres announced the first draft of a euro-adoption plan. Though a timeline has still not been set, if the country's ongoing convergence program makes it possible, Hungary can apply for entrance to the ERM II system and name an introduction date in 2010 or 2011; this would be a major step towards euro adoption[2]. An economic studies in 2008 has found that the adoption of the euro will increase foreign investment in Hungary by 30%[3].

Contents

Adopting the euro

Before the economic crisis

Hungary originally planned to adopt the euro as its official currency in 2007 or 2008[4]. Later 1 January 2010 became the target date[5], but that date has been abandoned because of the excessively high budget deficit, the inflation and the public debt. For years, Hungary couldn't meet any of Maastricht criteria[6]. After the 2006 election, Prime Minister Ferenc Gyurcsány had to make austerity measures and tell that the socialists made wrong economical policies to win the election; that caused protest in late 2006 and the economy slowed down in 2007 and 2008. However, the deficit fell under 5% from 9,2% in 2007 and came near to the 3% threshold in 2008.

The impact of the crisis

After of the 2008 global financial crisis, the likelihood of a fast adoption seemed greater[7]. Hungary got aid from the IMF, the EU and the World Bank[8]. In October 2008 the head of Hungary's largest bank called for a special application to join the eurozone[9].

The interim government

Ferenc Gyurcsány's position became unstable in March 2009. The EUR/HUF reached 317 in 6 March. Gyurcsány resigned on 21 March and the socialist and liberal parties decided not to call an early election in 2009 but to nominate economist Gordon Bajnai, one of Gyurcsány's ministers to be the new prime minister and have and interim government for a year from 14 April. Bajnai's premiership brought new austerity measures in Hungary. Thus, they may keep the deficit under 4% in 2009 and the 2010 budget calculates with 3,8%. The inflation came near to 3% as a result of the crisis, but because of the risen VAT, it had an average of 5% in the second half of the year. Because of the IMF loan, the public debt risen to near 80%. The central bank's interest rate fell to 6,25% from 10,5% in 2009. The Bajnai government couldn't lead Hungary to the ERM-II, but it stated it does not plan to do so.

The 2010 election

Currently, the situation in Hungary is highly unpredictable because an election will be held on April 11, 2010. On this election, the centre-right Fidesz has enormous chance to win and has a chance to have the two-third of the mandates. (If they had them, they could singly modify the constitution.) The Fidesz does not told what would be its economic priorities. If they choose the "euro-track", they must have a strict economic policy - but that may slow down the economy. They can raise the deficit if they agree with the IMF and the World Bank, but these organisations wouldn't let Hungary to have a much higher deficit, as they stated in late 2009. Fidesz stated that they see the socialists' 2010 budget would make a deficit higher than 7%. (However, the Budget Council, an independent organisation calculated it would be between 4 and 5%.)

That could mean a lot direction - a reason for new austerity measures, a sign of not planning a strict budget policy or simply to pay the debts of some state-owned companies in 2010. (That wouldn't affect the 2011 budget, then.) If the Fidesz chooses to have the euro as a priority, they could have problems with the interest rate - however, it sharply declined in 2009 - and the public debt. The public debt is much higher than 60%, but the EU does not reject candidates with only declining public debt. Only some analysts think Hungary could be able to join the ERM-II in 2010(and if the debts of the state-owned companies will be paid, it has no chance), but most of them thinks the country will be able to do so in 2011.

The 2010 entry could mean euro earliest in 2013, the 2011 entry could let the country to adopt euro on 1 January 2014. The 2014 date is thought to be more realistic by the economists. Thus, the euro could be adopted before the new election.

The Maastricht criteria

Inflation

Inflation slowed down to 2,2% in 2006. However, after the austerity measures, it was much higher than the criteria until the crisis. The crisis slowed down it until 2,9%, but in the end it was above the Maastricht criteria in 2009. In November 2009, it was 5.2%[10], because it was raised when the Hungarian VAT rate became 25% from 20% in July 2009.

Budget deficit

The budget deficit was 9,2% in the election year of 2006. After the austerity measures, it neared the 3% treshold in 2008. The deficit is planned to be 3,9% in 2009, but it might be a little bit above 4%. The 2010 budget plans 3,8%, but Fidesz, which will likely govern from middle-2010, still not talked about its target deficit for 2010(or 2011).

Public debt

Public debt accounted for 76.9% of GDP in the second quarter of 2009[11], above the 60% target. However, the EU will probably accept if the Hungarian public debt will decline for at least 2 years.

Interest rate

The central bank's interest rate was raised by 3%, to 11,5% from 8,5% in October 2008, because of the crisis. However, since then, the rate is declining; it is currenty 6.25%.[12] Experts expects further lowering by quarter percents in 2010.[13]

ERM-II membership

Hungary may apply for ERM-II membership in 2010, but analysts think 2011 is more realistic. However, that highly depends on the next government's priorities.

Coins of the future Hungarian euro

Hungarian euro coins have not yet been designed.

References

  1. ^ "Can we really have the euro first in the region?(In Hungarian.)". Menedzser Fórum. http://ecoline.hu/piac/20091222_eurobevezetes_vezeto.aspx. Retrieved 2008-12-14.  
  2. ^ "Hungary rolls out first draft of euro-adoption plan". Hungary's international business daily. http://www.realdeal.hu/20080708/hungary-rolls-out-first-draft-of-euroadoption-plan. Retrieved 2008-07-09.  
  3. ^ "About the impact of the EMU-entry.". Science Direct. http://www.sciencedirect.com/science?_ob=ArticleURL&_udi=B6V9S-4RDS3VV-4&_user=10&_rdoc=1&_fmt=&_orig=search&_sort=d&_docanchor=&view=c&_acct=C000050221&_version=1&_urlVersion=0&_userid=10&md5=4075e5e3c161172f03714f409e9ec966. Retrieved 2009-12-31.  
  4. ^ "When will we have the euro?(In Hungarian.)". Origo. http://www.origo.hu/uzletinegyed/valsag/20081203-mikor-lesz-magyar-euro.html. Retrieved 2008-12-14.  
  5. ^ "Veres: Euro can come in 2010.(In Hungarian.)". Sulinet. http://www.sulinet.hu/tart/fcikk/Kjgb/0/27575/1. Retrieved 2008-12-14.  
  6. ^ "Slovak euro application approved.(In Hungarian.)". FigyelőNet. http://www.fn.hu/penzugy/20080507/szlovakia_bevezetheti_eurot/?. Retrieved 2008-12-14.  
  7. ^ "Crisis can make faster euro adoption.(In Hungarian.)". KEMKIK. http://www.kemkik.hu/index.php?id=3676&term=. Retrieved 2008-12-14.  
  8. ^ "Hungary to get $25.1 billion in IMF-led aid deal". Economic Times. http://economictimes.indiatimes.com/articleshow/3652806.cms. Retrieved 2008-12-14.  
  9. ^ "Csányi: Euro adoption, anyway!(In Hungarian.)". FigyelőNet. http://www.fn.hu/valsag/20081027/csanyi_barmi_aron_euro/. Retrieved 2008-12-14.  
  10. ^ "Hungary inflation 5.2% in November 2009". Hungarian National Bank. http://english.mnb.hu/Engine.aspx. Retrieved 2009-08-19.  
  11. ^ "Another bad data for the hungarian euro-adoption.(In Hungarian.)". Hirszerzo. http://www.hirszerzo.hu/cikk.a_gdp_769_szazaleka_a_brutto_allamadossag_.119921.html. Retrieved 2009-08-17.  
  12. ^ "Interest rate 6.25% by Dec 22, 2009". MNB. http://www.mnb.hu/. Retrieved 2009-12-23.  
  13. ^ "6% interest rate is expected by the end of 2009". Origo. http://www.klikkbank.hu/valsag/20091123-a-magyar-nemzeti-bank-hetfoi-ulesen-dontott-a-kamat-65.html. Retrieved 2009-11-23.  

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