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Wednesday, November 22, 2006

No Euro Membership in Sight

This at least is the opinion of National Bank of Hungary governor Zsigmond Járai:

The government's present convergence program will not permit Hungary to adopt the euro, central-bank governor Zsigmond Járai said on Wednesday at a conference organized by the National Bank of Hungary on the country's past inflationary experiences.

The National Bank of Hungary previously expected Hungary to adopt the euro in 2007 or 2008, then extended the date to 2010; however it is no longer possible to tell when Hungary will be able to adopt the single European currency, Járai said. The central bank president asserted that the convergence program does not help improve the competitiveness of businesses in the country, increases tax burdens without broadening the tax base, while reducing the performance of the economy and economic growth. "Companies shouldn't calculate on the euro in their mid-term plans," Járai added.

Obviously Járai has some issues to battle out with the present government, and we shouldn't forget that only yesterday former Prime Minister Péter Medgyessy was having a go at the central bank, blaming them for their earlier monetary policy. Without entering directly into the politics of this, what Járai is saying makes a lot of sense. It is hard to see how job growth can be sustained with the present tax hike, and there is obviously going to be a reduction in domestic demand growth. But probably the most worrying issue is the present level of the Forint, coupled with the ongoing inflation, this will make exporting very hard work indeed, especially if the eurozone slows going into 2007. Clearly the central bank has a lot less responsibility for the mess than the politicians do, but the most worrying point of all is that there seems to be no direct sustainable path available for anyone to follow. I will fill in the details on this argument as we move forward. Bottom line, as the man says, don't count on Hungary joining the eurozone any time in the foreseeable future.

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