Hungary can replace its currency, the forint at the earliest on 1 January 2020, according to Viktor Orbán, the prime minister of the country. There is no target date and the forint is not part of European Exchange Rate Mechanism (ERM II). An economic study in 2008 has found that the adoption of the euro would increase foreign investment in Hungary by 30%.[1]
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Hungary originally planned to adopt the euro as its official currency in 2007 or 2008.[2] Later 1 January 2010 became the target date[3] but that date has been abandoned because of an excessively high budget deficit, inflation, and public debt. For years, Hungary could not meet any of the Maastricht criteria.[4] After the 2006 election, Prime Minister Ferenc Gyurcsány introduced austerity measures, causing protests in late 2006 and an economic slow-down in 2007 and 2008. However, in 2007, the deficit had been reduced to less than 5% (from 9.2%) and approached the 3% threshold in 2008. In 2008 analysts claimed that Hungary could join ERM II in 2010 or 2011 and so may adopt the euro in 2013, but more feasibly in 2014.[5] On 8 July 2008, then-Finance Minister János Veres announced the first draft of a euro-adoption plan.
After the 2008 global financial crisis, the likelihood of a fast adoption seemed greater.[6] Hungary got aid from the International Monetary Fund, the European Union and the World Bank.[7] In October 2008 the head of Hungary's largest bank called for a special application to join the eurozone.[8]
Ferenc Gyurcsány ran out of political capital in March 2009 to accept necessary measures. The EUR/HUF reached 317 on 6 March. Gyurcsány initiated constructive motion confidence against himself 21 March and nominated Minister for Development and economist Gordon Bajnai. The socialist and liberal parties accepted him to be the new prime minister and have an interim government for a year from 14 April. Bajnai's premiership brought new austerity measures in Hungary. Thus, they may keep the deficit under 4% in 2009 and the 2010 budget calculates with 3,8%. The inflation came near to 3% as a result of the crisis, but because of the risen VAT, it had an average of 5% in the second half of the year. Because of the IMF loan, the public debt risen to near 80%. The central bank's interest rate fell to 6,25% from 10,5% in 2009. The Bajnai government could not lead Hungary to the ERM-II, but it stated it does not plan to do so.
The centre-right Fidesz won the 2010 Hungarian parliamentary election, enough to form a government on its own. The Fidesz was not specific then about its economic priorities. Shortly after the formation of the new government, they announced their intention to keep the 2010 deficit on 3,8%.[9] After more pressure, in September they also accepted to bring it down to 3% in 2011.[10] In 2010, finance minister György Matolcsy said they will discuss euro adoption in 2012.[11] Mihály Varga, another member of the party talked about possible euro adoption in 2014 or 2015.[12]
However, in February 2011, Prime Minister Viktor Orbán made clear that he does not expect the euro to be adopted in Hungary before 2020.[13] Later, Matolcsy also confirmed this statement.[14] Orbán said the country is not ready yet to adopt the currency and they will not discuss the possibility until the public debt reaches a 50% threshold. (The public debt was over 80% then and the government expected to reach its target by 2018.) When the countries of the eurozone adopted the Euro Plus Pact on 25 March 2011, Hungary decided to go along with the United Kingdom, Sweden and the Czech Republic and choose not to join the pact. Matolcsy said that they could agree with the most of its contents, but did not want to give up the country's independence regarding corporate tax matters.[15]
Inflation slowed down to 2,2% in 2006. However, after the austerity measures, it was much higher than the criteria until the crisis. The crisis slowed it down until 2,9%, but in the end it was above the Maastricht criteria in 2009. It fluctuates near 4% in 2011.
The budget deficit was 9,2% in the election year of 2006. After the austerity measures, it neared the 3% threshold in 2008. The deficit is planned to be 3,9% in 2009, but finally it was above 4%. The 2010 budget planned 3,8%, but it also went over 4%. The government plans to keep the deficit under 3% in 2011.
Public debt accounted for 80,1% of GDP in 2010,[16] above the 60% target. However, the EU might accept a Hungarian public debt which declines for at least 2 years.
The central bank's interest rate was raised by 3%, to 11,5% from 8,5% in October 2008, because of the crisis. However, after then, the rate declined to 5.25%.[17] Currently it is 6%.[18]
As the country does not plan to adopt the euro until 2020, there is no discussion about a possible ERM-II membership.
Hungarian euro coins have not yet been designed. When asked about the production of the euro coins in a 2010 interview appearing in Coin News magazine in the UK, Ferenc Gaál, Mintmaster replied: "Originally, we were supposed to have finished production of forint coinage in 2008. This project (the facilities of the new mint premises) was specifically planned to meet the requirements of the new euro currency which will be launched in Hungary in the future, this new facility will ensure a very smooth change-over which will also provide us with the latest technology for minting & production of euro coins. It will take us only six months to produce enough coins to change from forints to euros. All the conditions are in place for a hopefully smooth change-over. Now, we’re just waiting for the “go-ahead”!"
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