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Abu Dhabi, UAEThursday 20 September 2018

Hungary may adopt euro faster than expected

EU push for a common budget and single finance minister for the euro zone

Hungary may be pushed into taking up the euro faster than it wants. Angel Garcia/Bloomberg
Hungary may be pushed into taking up the euro faster than it wants. Angel Garcia/Bloomberg

Hungary may adopt the euro sooner than its government is willing to admit, as Europe’s renewed integration drive will pull even countries reluctant to join into the common currency, the nation’s top banker said.

Leaders in Hungary, Poland, Romania and the Czech Republic - the four biggest economies in the European Union’s eastern wing - have refused to set target dates for adoption despite largely meeting accession criteria and being obliged to swap their currencies. While countries like Hungary will not rush it, they also do not want to be left out from deeper integration, said Sandor Csanyi, Hungary’s richest man and the chief executive of its largest lender OTP Bank.

“At the end of the day, Hungary will join the euro zone and we’ll go together,” with those pushing for deeper integration, said Mr Csanyi said in Budapest. “But I’m sure we’ll enter at the latest stage possible.”

That may not be far off. After holding the euro zone together during Europe’s debt crises, closing ranks following Britain’s decision to leave the EU and keeping populists at bay in elections including in France and Germany, European officials started a debate over closer cooperation last week. The French president Emmanuel Macron has said the discussions should include a common budget and single finance minister for the euro zone.

That has nudged some eastern EU members into action. Croatia, which joined four years ago, is aiming to enter the exchange-rate mechanism that’s a precursor to adoption by 2020 and officially join the euro a “couple of years later,” said the prime minister Andrej Plenkovic. Bulgaria is also pushing for entry. Five of the EU’s 11 ex-communist members - Slovenia, Slovakia, Estonia, Latvia and Lithuania - have entered the currency area.

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Other countries are not so eager for closer cooperation. Like Poland and the Czech Republic, Hungary has rejected a drive led by the German chancellor Angela Merkel to create a common EU immigration policy, and the governments in Budapest and Warsaw have clashed with officials in Brussels over upholding the EU’s democratic standards. All three countries are cool to the euro, citing wealth discrepancies with western Europe and the need to have independent monetary policies to help them handle external economic shocks.

The Hungary economy minister Mihaly Varga said last year the country of 10 million could adopt the euro by the end of the decade if it made progress closing the living-standard gap with western Europe. But he backed away from that stance in June and said the country had to close in on the euro-area average, from about two-thirds of that level now.

“Euro adoption will be timely once Hungary’s economic development nears the euro area average,” the ministry said on Wednesday. “Otherwise the country could lose out with accession just like some of the Mediterranean countries did.”

In 2011, the prime minister Viktor Orban also enshrined the forint in Hungary’s constitution, meaning lawmakers would have to approve an amendment with a two-thirds majority to make a switch.

Mr Csanyi, who ranked second to Mr Orban as Hungary’s most influential person in a poll by the napi.hu news website, said concerns over sovereignty would fall to the wayside if euro area countries push on with integration, the only viable way ahead for the EU.

“No country will be forced to give up 100 percent of its sovereignty,” Mr Csanyi said.

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