After weeks of debating with EU and IMF officials, Hungary finally took the first step toward reversing some of its controversial (and EU treaty-violating) new laws on Friday. Prime Minister Viktor Orban said he’d modify recent central bank reforms, dropping the provision that merged the bank with Hungary’s financial regulatory agency, PSZAF (which indirectly politicized the bank, since Orban would head PSZAF and effectively be central bank chief Andras Samara’s boss).
A word of caution though: The change isn’t a done deal. Orban said the right things, but that doesn’t guarantee he follows through. Any changes to the law need to clear Hungary ’s parliament, and Orban only committed to “make proposals to this end.” Parliamentary procedure could scupper those proposals. In fact, one shouldn’t discount the possibility of Orban manipulating proceedings to that end behind the scenes, ultimately getting his way while being able to tell the European Commission he at least tried to do as they asked (and hopefully still get his bailout).
Additionally, the central bank law was only one of three measures in EU officials’ sights. Last week, the European Commission formally warned Hungary it has one month to amend last year’s media and judiciary reforms, otherwise it faces treaty infringement proceedings in the European Court of Justice. If ruled guilty, Hungary stands to lose EU voting rights and billions of euros in desperately needed aid. Ongoing bailout negotiations are also likely contingent on these changes if the EU participates. However, addressing the European Parliament on Wednesday, Orban said he doesn’t want even one euro from the EU—only a provisional credit line from the IMF, which thus far has only targeted the central bank reforms. So it seems Orban’s goal is to concede as little as possible.
Still, wait and see—despite Orban’s Strasbourg address, his delegates continue negotiating with both the EU and IMF, so more reform reversals are still possible. Orban will probably continue making every effort to avoid further changes, considering these measures consolidated his Fidesz party’s grip on power. He won’t surrender easily. But the EU and IMF could still force his hand, restoring some of Hungarians’ freedom in the process.
For more detail on the reforms in question, see my recent MarketMinder column, “Hungary’s Crossroads.”
