Insight

Hungary and Poland are bluffing

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EU funding , Hungary , Poland , Rule of Law

Threatening to veto the EU budget over a mechanism that will tie funding to respect for the rule of law, Hungary and Poland are seeking a concession, not to commit collective self-harm. The EU budget package remains likely to be adopted before the end of the year. Pressure is mounting on Hungary and Poland from Germany – and, in Poland’s case, from the country’s governing coalition itself. In EU compromises, no-one ever loses face. Poland and Hungary are likely to be saved from this by a minor concession on the rule of law mechanism. This could be an annex to

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European funds are likely to be withheld from Poland and Hungary in the next seven-year EU budget amid rule of law (RoL) concerns

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EU funding , Hungary , Poland , Rule of Law

All three major EU institutions are adamant that EU financial support should be tied to respecting common European values and the rule of law. Poland and Hungary will likely lose some funding, with the exact amount depending on the hawkishness of a new rule of law mechanism. Although the precise system of RoL criteria along with details concerning the governance of the mechanism are yet to be determined, pro-RoL stakeholders will likely overcome opposition by Hungary and Poland. Growing pressure from both domestic audiences and the European Parliament (which threatened to block the MFF, the EU’s seven-year budget if no

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A rupture with Governor Matolcsy triggered Marton Nagy’s ousting from the National Bank

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Hungary , monetary policy , National Bank of Hungary

Disagreements with Governor Matolcsy over policy led to the dismissal of Marton Nagy as Deputy Governor of the National Bank of Hungary (NBH). Nagy’s appointment as advisor to PM Orban is likely a bridge to a more meaningful position. Nagy’s relationship with Matolcsy – as well as others at NBH – had long been fraught with tension. He forged a good personal relationship with Finance Minister Mihaly Varga, whose relationship with Matolcsy is strained, further offending Matolcsy when exhibiting ambition to take over the Governor’s position once his mandate expired. Their personal relationship became untenable when in March Nagy secured

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Hungarian forint exchange rate set to remain low

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currency , exchange rate , Hungary , monetary policy

The coronavirus crisis has pushed the forint to levels over Ft350:€1. This corresponds to the government’s preferences, and the central bank will do just enough to keep it from falling any further. The early effects of the coronavirus pandemic in Hungary drove the country’s currency to a record low, Ft370:€1, on 18 March. The National Bank of Hungary (NBH, the central bank) responded by hiking the one-week lending rate to 1.85%, from 0.9% previously. It left its 0.9% policy rate unchanged, however. This has so far succeeded in keeping the forint at levels between Ft350 and Ft360 to the euro.

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