Should the Forint give way to the Euro in Hungary?

Theoretically, Hungary might have fulfilled all the criteria that are necessary to change the country’s currency to Euro, but the government won’t even consider the common currency now. Vilaggazdasag listed the requirements for Euro qualification. 

One of the criteria of introducing the Euro in a member country is to reduce the government budget deficit and keep it under 3%, which Hungary accomplished, and its debt is decreasing since 2012. Another criterion is that inflation should not exceed the three best performing countries’ rate with more than 1.5 percentage points which was probably fulfilled by keeping inflation under 0. The best performing country’s inflation (it was Latvia), was around -0.5%.

The level of long term interests cannot pass the three best performing countries with 2 percentage points in inflation, but because Spain is part of the best three (and their interest level reaches 2%) the reference level is higher as well, therefore the 3.5% long term rate that Hungary has might qualify it for the Euro.

The exchange rate should be stabilized by spending two years in the exchange rate mechanism (ERM II), and the exchange rate of the foreign currency should only differ from the centrally determined rate by 15%. Although Hungary already fulfilled this criterion in 1999, as the country is officially not part of the ERM II system, it might not be accepted. Although the rules are much stricter now, the exchange rate was around 8% in the last two years which should fulfil the new criteria.

PM Viktor Orbán said in an interview six months ago that if a country has a proper fiscal policy (low budget deficit, decreasing debt, stable advancement) than the national currency can give a boost to the country, and “if it’s necessary, it may take years” until the Euro is introduced in Hungary. According to official announcements, the earliest estimated year for the Euro to be introduced is after 2020.

Copy editor: bm

Source: vg.hu