Will the long-awaited adoption of the euro in Hungary remain a dream?

Despite committing to adopt the euro upon joining the EU, Hungary continues to struggle with meeting the eurozone’s stringent criteria. With challenges ranging from budget deficits and public debt to inflation and rising interest rates, the euro in Hungary remains a distant dream, overshadowed by the enduring forint.

Struggling to meet eurozone criteria

As Pénzcentrum writes, Hungary committed to adopting the euro upon joining the European Union but has struggled to meet key eurozone entry criteria. The Institute of Economic Research recently assessed Hungary’s progress, highlighting mixed results. From 2004 to 2011, Hungary’s budget deficit consistently exceeded the 3% of GDP requirement, though fiscal discipline between 2012 and 2019 allowed compliance. However, the COVID-19 pandemic reversed this trend, with deficits exceeding the threshold until 2023, stabilising around 5% by 2024.

Public debt, another critical metric, remained far above the 60% of GDP guideline until 2012, despite a temporary improvement driven by pension fund nationalisation. While low interest rates aided a gradual decline in the debt ratio pre-pandemic, the crisis caused a sharp increase, leaving public debt levels stagnant since 2017. Meeting these benchmarks remains a significant challenge for the euro in Hungary.

Inflation makes matters worse

Inflation has also posed challenges to Hungary’s adoption of the euro. Before 2012, domestic price growth consistently exceeded the eurozone’s price stability criterion. Between 2014 and 2016, Hungary managed to align with the standard, aided by artificially suppressed utility costs. However, after 2016, while inflation remained close to the Hungarian National Bank’s 3% target, low euro area price growth made meeting the criterion difficult. Following a period of record-high inflation in Europe, which began to ease in 2022-2023, Hungary’s inflation stabilised near the reference value by late 2024, marking progress towards meeting this key requirement for introducing the euro in Hungary.

Euro in Hungary remains a distant dream

Hungary’s long-term interest rates have also fallen short of the Maastricht criteria for adopting the euro. While domestic rates consistently exceeded the allowed margin until 2012, the period between 2014 and 2020 saw compliance, thanks to favourable lending conditions. However, rising global and domestic rates since then have placed Hungary outside the threshold. By 2024, high interest rates and persistent budget deficits have moved the country further from euro adoption. Despite past opportunities, such as joining the ERM II in 2014, current economic policies suggest the forint will remain Hungary’s currency, delaying the potential benefits of the euro in Hungary.

Read also:

• Surprising: German companies push for euro in Hungary – will PM Orbán introduce it?
• Are Romania and Bulgaria ahead of Hungary in adopting the euro?

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