9-Jan-2012 - Hungary Leader Takes Steps to Calm Markets

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By GORDON FAIRCLOUGH and GERGO RACZ BUDAPEST—Hungary's prime minister moved to soothe anxious markets Friday, meeting with the central bank governor and showing a new willingness to discuss changes to a controversial law curbing the bank's independence that has become a stumbling block to international financial help. In a televised press conference, Prime Minister Viktor Orban said his administration believes striking a deal with the European Union and the International Monetary Fund on a financial safety net for the indebted country is "an urgent task" and declared his support for central-bank independence. Progress toward an agreement has stalled because of EU and IMF objections to a new central-bank law passed last week that they say threatens the institution's freedom of action and, consequently, poses risks for Europe's Continent-wide financial system. Speaking after a meeting with National Bank of Hungary Gov. Andras Simor, Mr. Orban defended the legislation at issue, but said he is awaiting the results of a review by the EU and the European Central Bank and indicated NFL shop jerseys he would cooperate with any needed changes. Government spokesman Andras Giro-Szasz was more explicit, saying Friday that the country "will adjust any law that's against European Union regulations." In a statement, the central bank said Gov. Simor and the government's economy minister would "remain in constant consultation and use available tools to ensure the stability of the Hungarian economy." The bank said that the meeting with the prime minister was requested by Gov. Simor. Markets cheered the news. The Hungarian forint strengthened to 315 forints to the euro, after taking serious losses in the first days of the year and hitting levels around 324 forints to the euro. Yields on the country's 10-year government bonds returned to single-digit realms, after rising as the forint fell. The relatively positive mood in the markets persisted despite Fitch Ratings' decision to follow earlier moves by Moody's Investors Service and Standard & Poor's and downgrade Hungary's sovereign rating to junk. "It was to be expected, and frankly, in such conditions it's better to just get it over with, rather than drag it out," said Zoltan Arokszallasi, an analyst at Erste Bank. The government and central bank have had an often contentious relationship since Mr. Orban took office. His government, keen on spurring economic growth, has pressed the bank to take steps such as quantitative easing. The bank has shunned such measures as unhelpful. Most recently, the government and the bank have been at odds over the bank's calculation of the size of the country's public debt, which has grown, despite government efforts to reduce it, because of the slipping value of the forint against the euro and football jerseys other currencies. Faced with a weakening forint and rising borrowing costs, Hungary said in November that it would ask for a precautionary safety net from the EU and IMF to provide an insurance policy against market gyrations and boost investor confidence in the country. But doubts about whether an agreement could be reached have mounted in recent weeks, especially after Hungary's Parliament on Friday passed the central-bank law after being asked by the EU and IMF to hold off, sending the forint to all-time lows against the euro. Hungary has a large public debt – equivalent to more than 80% of its annual economic output, according to the central bank. A deal with the EU and IMF could help keep a lid on borrowing costs, which have risen because of recent credit-rating downgrades and the euro zone's troubles. The market turmoil has coincided with mounting political pressure on Mr. Orban, under fire from the U.S. and other governments as well as from his domestic political opponents for a new constitution that critics say undermines democratic checks and balances. An estimated 30,000 people took to the streets of Budapest on Monday night to demonstrate against the basic law, passed in April last year. Opposition politicians say Mr. Orban's government has imposed overly onerous limits on the media and tried to weaken the court system. On Friday, U.S.-based advocacy group Human Rights Watch said that Hungarian government measures interfere with judicial independence and restrict media freedom. "The situation demands a resolute response by the EU, and the U.S. as well," the organization said. Mr. Orban–a leader in Hungary's transition from communism to democracy and capitalism in 1989 who won a landslide electoral victory in 2010-defends his government's commitment to democracy, saying it is being unfairly maligned by its critics.

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