Cutting the deficit

Hungarian State Secretary Mihaly Varga on Monday made it clear that even in a worst-case scenario, Hungary's expected budget deficit would be several times lower than that of Greece.

"We don't want a war of words," Varga said, adding that the deficit target of 3.8 percent of gross domestic product reached in agreement with the International Monetary Fund and the European Union was "attainable."

It was "unfortunate" that colleagues had suggested that Hungary was on the verge of bankruptcy, Varga said.

Officials from the ruling center-right Fidesz party said last week that Hungary may face a crisis similar to that of financially troubled Greece. On Friday, a spokesman for Hungarian Prime Minister Viktor Orban defended the comments and added to the drama by saying the situation was "grave" and that talk of default was "not an exaggeration."

Hungary is not Greece

Those comments plunged the euro to a record low, Hungary's forint became one of the world's worst performing currencies and the government's borrowing costs skyrocketed. The reaction refocused concern on a region that European Union leaders had hoped was recovering from the global financial crisis.

State secretary Varga has been in charge of a fact-finding panel to look into the new government's claims that the previous administration manipulated economic figures.

The Fidesz government of Prime Minister Orban came to power in late May after winning parliamentary elections on promises of tax cuts and economic stimulus. But the European Union has warned the government of the need to continue fiscal belt-tightening and to accelerate deficit cuts.

Varga says the panel's findings show that the previous Socialist-led government lied about the true state of the economy and that it provided false data about revenues and losses. The Socialists have strongly denied any wrongdoing. Several international investors say the new government's statements are an attempt to prepare voters for the fact that it will not be able to fulfil its campaign pledges.

The Fidesz government faces tough economic decisions

"We all know that Hungary has to make major internal reforms," said Andras Toth, an analyst at the Budapest-based Institute for Political Science of the Hungarian Academy of Sciences.

In an effort to ward off possible bankruptcy, Hungary has already accepted 20 billion euros ($ 23,86 billion) in financial assistance from the International Monetary Fund, the EU and the World Bank - each of which has expressed confidence that the country will recover, despite concerns that the crisis in Greece and the euro zone could spread to Eastern Europe.

Author: Stefan Bos (db)
Editor: Chuck Penfold