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FT says Hungary was lucky to have austerity package

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Hungary was lucky that the PM’s austerity package was introduced before the global liquidity crisis of the previous months, The Financial Times says in its country analysis.

Still the austerity measures arrived way too late; the first market warning occurred in 2003, when the Central Bank had to raise the base rate to 12% to calm down investors. According to the Financial Times analysis, the Gyurcsány-package was one of the most strict austerity programs in the history of the EU; this year alone the state budget deficit was decreased by over 3 percentage points.

A restriction of over 1% of the GDP is considered strong in Europe. However, there was no choice in that as the state deficit reached 9.2% of the GDP at its top. The greatest challenges the country is facing are the need to decrease the size of the administration; to raise low employment levels and the level of qualification among employees, especially those aged 45 or over.

The end of austerity
Parliament has started discussion of next year's budget. Socialist are satisfied, while biggest opposition Fidesz party thinks it is fundamentally mistaken. There is no need for further austerity and a slight growth in consumption is expected in 2008, said Finance Minister János Veres. Target surplus totals at Ft 170 billion (Ft 61 billion general surplus and Ft 109 billion balance surplus.) It is possible to carry out the budget plan, but potential risk areas include local governments and a slowing growth, said Árpád Kovács chair of the State Audit Office.

Growth has so far been triggered by privatization and FDI, but these resources are to fade soon. Local governments will receive more European funding and increase their own incomes, but their government funding will be reduced. On the total they will have more money, but the increase of their debts poses a serious potential risk. (Gazdasági Rádió, Magyar Hírlap, Napi Gazdaság)

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