Hungary Bends to EU Demands as Forint Woes Add Urgency for Funds

Hungary said talks with the European Union to secure crucial funding were at an “advanced stage” as Prime Minister Viktor Orban came under intense pressure to compromise on key issues to help reverse a dramatic currency decline.

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(Bloomberg) — Hungary said talks with the European Union to secure crucial funding were at an “advanced stage” as Prime Minister Viktor Orban came under intense pressure to compromise on key issues to help reverse a dramatic currency decline. 

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Hungary has decided to accept the European Commission’s demands in four key areas, including tackling corruption and making bids for EU and national funding more transparent, Cabinet Minister Gergely Gulyas told reporters on Thursday. 

Hungary’s disputes with the EU over rule of law concerns have delayed the disbursement of as much as 37 billion euros ($37.7 billion) of the bloc’s funding, which investors have cited as spurring a bigger selloff in the forint than other regional currencies.

Compromises include allowing courts to overrule the chief prosecutor on whether to initiate graft investigations; reducing the number of single bids for both EU and national tenders; narrowing the number of rapid legislative changes; and using part of the EU funding to diversify energy resources, now largely reliant on Russia.

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The cabinet discussed the market turmoil — which saw the forint drop to a fresh record against the euro on Wednesday and forced the central bank to hike the key interest rate by 200 basis points on Thursday — during a 10-hour marathon meeting, Gulyas said. The government recommitted itself to meeting budget-reduction targets, he said, while noting that Hungary’s economic fundamentals are “strong” and the forint’s plunge was due to the soaring gas prices and the impact of the Russia-Ukraine war.

At the same time, Gulyas said Hungary’s higher debt ratio made the country more vulnerable in a risk-off market environment.