Budapest - Hungary, one of Europe's hardest-hit nations in the global financial crisis, could begin talks aimed at adopting the euro as early as 2009, Finance Minister Janos Veres said Thursday. Veres said he was envisaging negotiations for Hungary to join Europe's Exchange Rate Mechanism, known as ERM-II. Nations have to meet ERM's currency stability rules for at least two years before being considered for eurozone membership.
Speaking at a conference in Budapest, Veres said Hungary will start drawing on 20 billion euros in emergency credit lines offered by the International Monetary Fund, the European Union and the World Bank.
The loans were hastily offered in October to save Hungary from default and shore up the vulnerable economy amid fears that the national currency, the forint, would collapse.
The first of four slices of 6.5 billion euros put up by the EU will be drawn down in December, Veres said, adding that the money will not be used to bail out Hungarian businesses.
The loan agreement was signed with Economic and Monetary Affairs Commissioner Joaquin Almunia on Wednesday.
The first portion of 12.5 billion euros offered by the IMF will be used in the first quarter of 2009 to renew maturing foreign currency debts, the finance minister added.
Eurozone entry seemed far away in 2006, when Hungary had the highest budget deficit of any EU country at 9.2 per cent of GDP. Then a drastic austerity package - mainly tax hikes - lowered the gap to 5.5 percent by the end of 2007.
The government has been forced to consider unpopular public spending cuts as the effects of the global financial crisis hit Hungary.
Latest official predictions suggest a 3.4-per-cent deficit this year, while the target for 2009 is 2.6 percent, below the 3-per-cent threshold for joining the euro.
Hungary must also reduce its foreign debt, currently around 65 percent of gross domestic product, and rein in inflation before it will be considered for ERM-II.
On Tuesday, parliament passed "fiscal responsibility" legislation which sets a cap on public spending and aims to ensure that governments will not spend beyond the country's means in future budgets.
The new law also calls for the setting up of an independent three-man fiscal council which will analyse the potential financial impact of parliamentary bills.
