March 11th, 2009
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EU finance chiefs sign off on Hungary’s convergence plan

European Union finance ministers on Tuesday approved an assessment of Hungary’s convergence programme by the European Commission, deputy finance minister Almos Kovacs said.

Ecofin approved proposals the Commission made, including one urging Hungary to take the necessary steps to bring its general government deficit under 3 percent of GDP.

Kovacs noted that the measures are not new, but were decided on earlier.

In its assessment of Hungary’s convergence plan delivered in February, the Commission acknowledged improvements to the country’s balance, but warned that continued structural reforms were needed to make public finances sustainable.

“In spite of distinct improvements in its high imbalances, including the reduction in its budget deficit from 9.3 percent in 2006 to below 3.5 percent in 2008, Hungary has been particularly exposed to the financial crisis due to still high levels of government and external debt. Thus, to restore investor confidence Hungary adopted a policy of further fiscal adjustment and tighter deficit targets,” the Commission said.

Answering a question, Kovacs said Hungary’s proposal for assistance for Eastern Europe’s entire banking system was discussed by finance ministers in Brussels.

EU leaders gave the proposal a cold reception at a summit a week earlier, arguing the region did not need a one-size-fits-all support package.

Kovacs said Hungary agrees that the situation of each of the countries in the region is different, but they do have a common problem, namely that the banking system and the financial system are in large part foreign owned. Foreign parent banks have shortened the runs of resources for their foreign subsidiaries, increasing countries’ short-term debt and thus causing their risk assessments to worsen, he explained. For this reason, long-term financing has to be made available to these countries.

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