Gyurcsany maintained that euro entry in 2010 is still possible but said the government must decide between the social and economic consequences of a rapid reduction in the budget deficit or a smoother transition with delayed entry.
The admission comes shortly after a ruling by the EU's Eurostat obliging Hungary to include motorway construction costs in public finance calculations. The move could push the Hungarian budget deficit up to 5.5-6% of GDP this year, as opposed to the original 3.6% target. The government must reduce this to 3% by 2008 if it wants to adopt the euro in 2010.
Analysts have long questioned the likelihood of achieving the required deficit targets in the time frame laid out by the government. The present admission has not surprised markets.
"The reaction of markets has been muted so far. In theory the forint should weaken slightly while yields should see a small increase. At present it seems that high interest rates still override any unfavorable news," according to Raiffeisen Bank analyst Zoltan Torok.
"In fact the Prime Minister's announcement is nothing surprising, as the 2010 EMU entry date has become increasingly unfeasible ... Nevertheless, the announcement also points to the unwillingness of the current center-left government to cut the deficit for the 2006 election year," Torok added.
Meanwhile, Viktor Orban, leader of opposition party Fidesz said Hungary will not be in a position to adopt the euro until 2013-2016 because of the runaway budget deficit. Orban added that the real Hungarian budget deficit is around 8% of GDP at present.
NAPI Online