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Hungarian report Hungarian report
by Euro Reporter
2012-11-21 10:50:34
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Hungary’s credit default swaps rise to highest in five weeks

Hungary’s cost to insure debt with credit-default swaps rose to the highest in five weeks as a dispute between U.S. political parties on the budget hurt investor appetite for riskier assets. The contracts raised 10 basis points to 318 by 4:43 p.m. in Budapest, the highest since Oct. 11. The forint climbed 0.2 percent to 284.3 per euro, paring its loss this week to 0.3 percent, a fourth consecutive week of declines.

Hungary, the most indebted of the European Union’s eastern members, extended its recession into a third consecutive quarter as the euro region’s crisis weakened exports, the statistics office reported yesterday. The benchmark MSCI Emerging Market Index headed for its biggest weekly slide since July and European stocks dropped to a two-month low as U.S. President Barack Obama prepared to hold talks with Republican lawmakers on the country’s so-called fiscal cliff.

“International sentiment is quite gloomy,” Zoltan Arokszallasi, a Budapest-based analyst at Erste Group Bank AG, wrote in a research report today. “The American ‘fiscal cliff’ problem is remaining in investors’ focus. For that reason we’re not expecting substantial forint appreciation.”

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Bank chief quits in tax dispute with Orban government

Mihaly Patai, the chairman of Hungary’s Banking Association, resigned on Tuesday, marking another twist in the long-running battle between Prime Minister Viktor Orban’s government and the country’s banking sector. The move comes after parliament in Budapest passed legislation on Monday which reneges on an earlier pledge to halve Hungary’s controversial bank tax next year, while in addition doubling the new Financial Transaction Tax (FTT), set to be imposed from January 1, to 0.2 per cent of transactions.

The government says the measures are needed as part of a tax package required to keep Hungary’s budget deficit below the 3 per cent threshold set by the European Union. The government fears failure to keep to this limit could see Hungary lose European funding. Patai, who is also head of UniCredit Bank in Hungary, last month, gave warning of his intention to resign if the government went ahead with its latest plans, which nullify an agreement made last December that had seemed to establish a new era of cooperation between the banks and the government. The banking association said in a press statement at the time that it was “shocked” by the government’s latest proposals.

“The problem is not the resignation, which is symbolic, but the reasons behind it. The fact that the bank tax remains, contrary to the agreement, and the transaction tax is introduced, all together means an awful situation for the commercial banks,” Laszlo Akar, vice president of the Budapest-based GKI economic research institute. Akar, who was a state secretary in Hungary’s finance ministry in an earlier Socialist government, said: “Quite clearly the commercial banks’ activities will diminish further, probably quite significantly. This is bad news for the banks and the economy as well.”

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Hungary leader talks tough as opponent returns

Hungary commemorated the anniversary of its 1956 uprising against Soviet occupation Tuesday, with Prime Minister Viktor Orban lashing out against what he saw as foreign interference and former premier Gordon Bajnai marking his return to mainstream politics. The main events of the day were parallel rallies. One was by a pro-government march across Budapest and the other a gathering not far away led by the organization Milla, an acronym for one-million strong for freedom of the press.

Mr. Orban was once again critical of the European Union, saying that while Hungary fully endorses the values of the bloc, it won’t allow outside tampering with its affairs. The country was saved with one bailout in 2008, at the beginning of the global financial crisis, and is now seeking a credit line from the International Monetary Fund and the European Union as a precaution. These forms of support usually come with conditions from lenders. “We can’t accept strangers telling us what we can and can’t do in our own home,” Mr. Orban told an audience which the Interior Ministry estimated at 400,000. The premier was referring to repeated clashes between his cabinet and Brussels over economic and political issues.

The most recent disagreement could result in Hungary losing EU development funds amounting to well over 3% of its annual gross domestic product for being unable to keep its budget deficit in check. In the meantime, Mr. Bajnai, who led a caretaker government in 2009-2010, urged cooperation among political and civil groups dissatisfied with Mr. Orban’s government, which despite waning approval ratings still heads all polls more than two years into its term. “It will be difficult but it can be done,” Mr. Bajnai said. Mr. Bajnai is widely considered by political analysts as the only challenger to Mr. Orban’s conservative government capable of uniting Hungary’s fragmented political opposition. “Alone we would fall, but together we will win,” Mr. Bajnai said.



        
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