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Hungary and the euro


Hungary and the euro

Eurozone participation
  7 European Union member states not in ERM II but obliged to join once convergence criteria are met (Bulgaria, Croatia, Czech Republic, Hungary, Poland, Romania and Sweden)
  1 European Union member state in ERM II, with an opt-out (Denmark)
  1 European Union member state not in ERM II, with an opt-out (United Kingdom)
  4 non-European Union member states using the euro with a monetary agreement (Andorra, Monaco, San Marino and Vatican City)
  2 non-European Union member states using the euro unilaterally (Kosovo and Montenegro)

While the Hungarian government has been planning since 2003 to replace the Hungarian forint with the euro, as of 2014, there is no target date and the forint is not part of the 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] although current governor of the Hungarian National Bank (MNB) and former Minister of the National Economy György Matolcsy said they did not want to give up the country's independence regarding corporate tax matters.[2]


  • Adopting the euro 1
    • Under the socialist governments between 2002 and 2010 1.1
    • Under the conservative government from 2010 1.2
  • Public opinion 2
  • The Maastricht criteria 3
    • Inflation 3.1
    • Budget deficit 3.2
    • Public debt 3.3
    • Interest rate 3.4
    • ERM-II membership 3.5
  • Coins of the future Hungarian euro 4
  • See also 5
  • References 6

Adopting the euro

Under the socialist governments between 2002 and 2010

Hungary originally planned to adopt the euro as its official currency in 2007 or 2008.[3] Later 1 January 2010 became the target date,[4][5] but that date was abandoned because of an excessively high budget deficit, inflation, and public debt. For years, Hungary could not meet any of the Maastricht criteria.[6] After the 2006 election, Prime Minister Ferenc Gyurcsány introduced austerity measures, causing protests in late 2006 and an economic slowdown 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 might adopt the euro in 2013, but more feasibly in 2014,[7] or later, depending on Eurozone crisis developments. On 8 July 2008, the 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.[8] Hungary received aid from the International Monetary Fund, the European Union and the World Bank.[9] In October 2008 the head of Hungary's largest bank called for a special application to join the eurozone.[10]

Ferenc Gyurcsány ran out of political capital in March 2009 to accept necessary measures. The exchange rate reached 317 forints to one euro on 6 March. Gyurcsány initiated a constructive motion of no confidence against himself on 21 March and nominated Minister for Development and economist Gordon Bajnai as his replacement. The socialist and liberal parties accepted him as the new prime minister with an interim government for one 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 calculations assumed 3.8%. The inflation outturn was near 3% as a result of the crisis, but because of the increase in VAT, it averaged 5% in the second half of the year. Because of the IMF loan, the public debt rose to nearly 80%. The central bank interest rate fell to 6.25% from 10.5% in 2009. The Bajnai government could not lead Hungary into the ERM-II, and it stated that it had no plans to do so.

Under the conservative government from 2010

The centre-right soft eurosceptic Fidesz won enough seats in the 2010 Hungarian parliamentary election to form a government on its own. 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 at 3.8%.[11] After more pressure, in September they also accepted a reduction of 3% in 2011.[12] In 2010, Finance Minister György Matolcsy said they would discuss euro adoption in 2012.[13] Mihály Varga, another member of the party, talked about possible euro adoption in 2014 or 2015.[14]

However, in February 2011, Prime Minister Viktor Orbán made clear that he does not expect the euro to be adopted in Hungary before 2020.[15] Later, Matolcsy also confirmed this statement.[16] Orbán said the country was not yet ready to adopt the currency and they would not discuss the possibility until the public debt reached a 50% threshold.[17] The public debt-to-GDP ratio was 81.0% when Orban's 50% target was set in 2011, and it is currently forecast to decline to 73.5% in 2016.[18]

In 2011, experts said that the earliest date that Hungary could adopt the euro was 2015.[19]

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 chose 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.[2] As the Euro Plus Pact does not feature any legal obligations - but only commitments to use various sets of voluntary tools to improve employment, competitiveness, fiscal responsibility and financial stability - joining this pact would not lead to a requirement for Hungary to abandon their current corporate tax method.

In April 2013, Viktor Orbán proclaimed euro adoption would not happen until the Hungarian purchasing power parity weighted GDP per capita had reached 90% of the eurozone average.[20] According to Eurostat, this relative percentage rose from 57.0% in 2004 to 63.4% in 2014.[21] If the same pace of "catching up" progress was to be expected in the future as in the past ten years (6.4% per decade), Hungary would only reach Orban's 90% target and adopt the euro in 2056. Although, Hungary could potentially also reach Orban's 90% target and adopt the euro in 2033, if being able for the upcoming period to sustain the same 1.4% of annual improvements in the figure as achieved from 2013 to 2014. Shortly after Orbán had been re-elected as Prime Minister for another four-year term in April 2014,[22] the Hungarian Central Bank announced that they planned to introduce a new series of Forint bank notes in 2018.[23] No official target date has been set for euro adoption.

Public opinion

According to a eurobarometer poll in April 2015, 60% of Hungarians are in favour of introducing the euro (a decrease of 4% from 2014) while 35% are opposed (an increase of 5% from 2014).[24][25]

The Maastricht criteria


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 to 2.9%, but in the end it was above the Maastricht criteria in 2009. The annual inflation was 0.9% in October 2013.

Budget deficit

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 was planned to be 3.9% in 2009, but was ultimately above 4%. The 2010 budget planned 3.8%, but it also went over 4%. Hungary's general government deficit, excluding the effect of one-off measures, was 2.43% of GDP in 2011, lower than the 2.94% target and under the 3% threshold for the first time since 2004. Hungary recorded a budget deficit of 1.9% in 2012, well below previous expectations. The budget deficit is expected to be under the 3% threshold in 2013 as well.[26]

Public debt

Public debt accounted for 80.1% of GDP in 2010,[27] above the 60% target. However, the EU might accept a Hungarian public debt which declines for at least 2 years.

Interest rate

The central bank's interest rate was raised by 3% to 11.5% in October 2008, because of the crisis. However, then it was lowered consecutively 14 times till April 27, 2010 down to 5.25%. Then it was raised 5 times till December 21, 2011 up to 7%. Since then the rate has declined 21 times, as of April 2014 the interest rate is 2.50% [28]

ERM-II membership

As the conservative government in 2013 does not plan to adopt the euro until 2020, there is no discussion about a possible ERM-II membership.

Convergence criteria
Assessment month Country HICP inflation rate[29][nb 1] Excessive deficit procedure[30] Exchange rate Long-term interest rate[31][nb 2] Compatibility of legislation
Budget deficit to GDP[32] Debt-to-GDP ratio ERM II member[33] Change in rate[34][35][nb 3]
2012 ECB Report[nb 4] Reference values Max. 3.1%[nb 5]
(as of 31 Mar 2012)
None open (as of 31 March 2012) Min. 2 years
(as of 31 Mar 2012)
Max. ±15%[nb 6]
(for 2011)
Max. 5.80%[nb 7]
(as of 31 Mar 2012)
(as of 31 Mar 2012)
Max. 3.0%
(Fiscal year 2011)[38]
Max. 60%
(Fiscal year 2011)[38]
 Hungary 4.3% Open No -1.4% 8.01% No
-4.3% (surplus) 80.6%
2013 ECB Report[nb 8] Reference values Max. 2.7%[nb 9]
(as of 30 Apr 2013)
None open (as of 30 Apr 2013) Min. 2 years
(as of 30 Apr 2013)
Max. ±15%[nb 6]
(for 2012)
Max. 5.5%[nb 9]
(as of 30 Apr 2013)
(as of 30 Apr 2013)
Max. 3.0%
(Fiscal year 2012)[41]
Max. 60%
(Fiscal year 2012)[41]
 Hungary 4.6% Open (Closed in June 2013) No -3.5% 6.97% Unknown
1.9% 79.2%
2014 ECB Report[nb 10] Reference values Max. 1.7%[nb 11]
(as of 30 Apr 2014)
None open (as of 30 Apr 2014) Min. 2 years
(as of 30 Apr 2014)
Max. ±15%[nb 6]
(for 2013)
Max. 6.2%[nb 11]
(as of 30 Apr 2014)
(as of 30 Apr 2014)
Max. 3.0%
(Fiscal year 2013)[44]
Max. 60%
(Fiscal year 2013)[44]
 Hungary 1.0% None No -2.6% 5.80% No
2.2% 79.2%

  Criterion fulfilled
  Criterion potentially fulfilled: If the budget deficit exceeds the 3% limit, but is "close" to this value (the European Commission has deemed 3.5% to be close by in the past),[45] then the criteria can still potentially be fulfilled if either the deficits in the previous two years are significantly declining towards the 3% limit, or if the excessive deficit is the result of exceptional circumstances which are temporary in nature (i.e. one-off expenditures triggered by a significant economic downturn, or by the implementation of economic reforms that are expected to deliver a significant positive impact on the government's future fiscal budgets). However, even if such "special circumstances" are found to exist, additional criteria must also be met to comply with the fiscal budget criterion.[46][47] Additionally, if the debt-to-GDP ratio exceeds 60% but is "sufficiently diminishing and approaching the reference value at a satisfactory pace" it can be deemed to be in compliance.[48]
  Criterion not fulfilled

  1. ^ The 12-months average for the annual HICP inflation rate must be no more than 1.5% larger than the unweighted arithmetic average of the similar HICP inflation rates in the 3 EU member states with the lowest HICP inflation. If any of these 3 states have a HICP rate significantly below the similarly averaged HICP rate for the eurozone (which according to ECB practice means more than 2% below), and if this low HICP rate has been primarily caused by exceptional circumstances (i.e. severe wage cuts or a strong recession), then such a state is not included in the calculation of the reference value and is replaced by the EU state with the fourth lowest HICP rate.
  2. ^ The annual average for the yield of 10-year government bonds must be no more than 2.0% larger than the unweighted arithmetic average of the bond yields in the 3 EU member states with the lowest HICP inflation. If any of these states have bond yields which are significantly larger than the similarly averaged yield for the eurozone (which according to previous ECB reports means more than 2% above) and at the same time does not have complete funding access to financial markets (which is the case for as long as a government receives bailout funds), then such a state is not be included in the calculation of the reference value.
  3. ^ The change in the annual average exchange rate against the euro.
  4. ^ Reference values from the ECB convergence report of May 2012.[36]
  5. ^ Sweden, Ireland and Slovenia were the reference states.[36]
  6. ^ a b c The maximum allowed change in rate is ± 2.25% for Denmark.
  7. ^ Sweden and Slovenia were the reference states, with Ireland excluded as an outlier.[36]
  8. ^ Reference values from the ECB convergence report of June 2013.[39]
  9. ^ a b Sweden, Latvia and Ireland were the reference states.[39]
  10. ^ Reference values from the ECB convergence report of June 2014.[42]
  11. ^ a b Latvia, Portugal and Ireland were the reference states.[42]

Coins of the future Hungarian euro

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'!"

See also


  1. ^ "About the impact of the EMU-entry.". Science Direct. Retrieved 2009-12-31. 
  2. ^ a b "Orbán: We will not join the Euro Pact.(In Hungarian.)". Hírszerző. Retrieved 2011-03-26. 
  3. ^ "When will we have the euro?(In Hungarian.)". Origo. Retrieved 2008-12-14. 
  4. ^ "MET – Magyarországi Európa Társaság – On the Introduction of the Euro in Hungary: Let’s Stick to 2010!". Retrieved 26 April 2011. 
  5. ^ "Veres: Euro can come in 2010.(In Hungarian.)". Sulinet. Retrieved 2008-12-14. 
  6. ^ "Slovak euro application approved.(In Hungarian.)". FigyelőNet. Retrieved 2008-12-14. 
  7. ^ "Can we really have the euro first in the region?(In Hungarian.)". Menedzser Fórum. Retrieved 2008-12-14. 
  8. ^ "Crisis can make faster euro adoption.(In Hungarian.)". KEMKIK. Retrieved 2008-12-14. 
  9. ^ "Hungary to get $25.1 billion in IMF-led aid deal". Economic Times. 29 October 2008. Retrieved 2008-12-14. 
  10. ^ "Csányi: Euro adoption, anyway!(In Hungarian.)". FigyelőNet. Retrieved 2008-12-14. 
  11. ^ "Matolcsy in Luxembourg: we will keep the deficit at 3,8%.(In Hungarian.)". Hírszerző. Retrieved 2011-03-26. 
  12. ^ "Matolcsy: deficit will be under 3% in 2011.(In Hungarian.)". Index. Retrieved 2011-03-26. 
  13. ^ "Hungary May Name Euro Entry Target Date in 2012, Matolcsy Says". Businessweek. Retrieved 2011-03-26. 
  14. ^ "Varga promises euro in 2014 or 2015.(In Hungarian.)". GazdaságiRádió. Retrieved 2011-03-26. 
  15. ^ "Orbán: We won't have euro until 2020" (in Hungarian). Index. 5 February 2011. Retrieved 26 March 2011. 
  16. ^ "Matolcsy: Hungarian euro is possible in 2020.(In Hungarian.)". Világgazdaság. 4 March 2011. Retrieved 2011-03-26. 
  17. ^ "Matolcsy: Hungarian euro is possible in 2020" (in Hungarian). Világgazdaság. 4 March 2011. Retrieved 26 March 2011. 
  18. ^ "European Economic Forecast Spring 2015 - 17.Hungary" (PDF). European Commission. 5 May 2015. 
  19. ^ "Ungarn: Euro-Einführung noch nicht absehbar – Wirtschaft in Ungarn". 1 December 2009. Retrieved 26 April 2011. 
  20. ^ "Orbán: Hungary will keep forint until its GDP reaches 90% of eurozone average". All Hungary Media Group. 26 April 2013. 
  21. ^ "Purchasing power parities (PPPs), price level indices and real expenditures for ESA2010 aggregates: GDP Volume indices of real expenditure per capita in PPS (EU28=100)". Eurostat. 16 June 2015. 
  22. ^ "Hungary election: PM Viktor Orban declares victory". BBC. 6 April 2014. 
  23. ^ "Hungary’s New Notes Speak of Late Conversion to Euro". The Wall Street Journal. 1 September 2014. 
  24. ^
  25. ^
  26. ^ "". 
  27. ^ "Hungarian public debt lowered and rose as well.(In Hungarian.)". Napi Gazdaság. Retrieved 2011-03-26. 
  28. ^ "Hungarian National Bank Interest rate".  
  29. ^ "HICP (2005=100): Monthly data (12-month average rate of annual change)". Eurostat. 16 August 2012. Retrieved 6 September 2012. 
  30. ^ "The corrective arm".  
  31. ^ "Long-term interest rate statistics for EU Member States (monthly data for the average of the past year)". Eurostat. Retrieved 18 December 2012. 
  32. ^ "Government deficit/surplus data". Eurostat. 22 April 2013. Retrieved 22 April 2013. 
  33. ^ "What is ERM II?". European Commission. 31 July 2012. Retrieved 8 September 2012. 
  34. ^ "Euro/ECU exchange rates - annual data (average)". Eurostat. Retrieved 5 July 2014. 
  35. ^ "Former euro area national currencies vs. euro/ECU - annual data (average)". Eurostat. Retrieved 5 July 2014. 
  36. ^ a b c "Convergence Report May 2012" (PDF).  
  37. ^ "Convergence Report - 2012" (PDF).  
  38. ^ a b "European economic forecast - spring 2012" (PDF). European Commission. 1 May 2012. Retrieved 1 September 2012. 
  39. ^ a b "Convergence Report" (PDF).  
  40. ^ "Convergence Report - 2013" (PDF).  
  41. ^ a b "European economic forecast - spring 2013" (PDF). European Commission. February 2013. Retrieved 4 July 2014. 
  42. ^ a b "Convergence Report" (PDF).  
  43. ^ "Convergence Report - 2014" (PDF).  
  44. ^ a b "European economic forecast - spring 2014" (PDF). European Commission. March 2014. Retrieved 5 July 2014. 
  45. ^ "Luxembourg Report prepared in accordance with Article 126(3) of the Treaty" (PDF). European Commission. 12 May 2010. Retrieved 18 November 2012. 
  46. ^ "EMI Annual Report 1994" (PDF). European Monetary Institute (EMI). April 1995. Retrieved 22 November 2012. 
  47. ^ "Progress towards convergence - Nov. 1995 (report prepared in accordance with article 7 of the EMI statute)" (PDF). European Monetary Institute (EMI). November 1995. Retrieved 22 November 2012. 
  48. ^ "Progress towards convergence - November 1995 (report prepared in accordance with article 7 of the EMI statute)" (PDF). European Monetary Institute (EMI). November 1995. Retrieved 17 March 2013. 
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