Gyurcsány had earlier sacked SzDSz Health Minister Ágnes Horváth following a defeat in a referendum on health reform this month, and said he would amend a law already passed by parliament to let private money into health insurance. The end of the coalition, which has ruled Hungary since 2002, effectively signals the end of economic reforms and a period of political instability at a time when Hungary’s currency and bonds are vulnerable to sharp market selloffs.

It may also seal the fate of Gyurcsány, although the socialists pledged to continue supporting him. Liberal party leader János Kóka told a press conference on Monday, that his ministers would withdraw on April 30 and appeared to suggest that his party would support a minority socialist government from the outside. Kóka also said his party might change its mind on leaving the coalition if the socialists, currently scoring just 15% in opinion polls, replaced Gyurcsány. “It is not the intent nor the interest of the Free Democrats to force early elections,” he said.

Political analysts said it was a moot point whether Gyurcsány, who ousted the incumbent prime minister in a party coup in 2004, would stay in power for his full term. “For the first time in a long time the Free Democrats jointly stood up for the same cause … It remains to be seen whether the Socialists will do the same for Gyurcsány; this will decide the final outcome,” said political analyst Zoltán Somogyi.

ELECTIONS A RISK

Early elections would almost certainly result in MSzP being forced from power and the annihilation of the liberals, who stand at just 1% support in surveys, far below the 5% threshold for entering parliament. Gyurcsány could either rule in a minority government or try to persuade at least four liberals to join, enough for an outright majority. The Free Democrats have 20 members in the 386-seat parliament and the Socialists 190.

Political analysts said it was a moot point whether Gyurcsány, who ousted the incumbent prime minister in a party coup in 2004, would stay in power for his full term. “For the first time in a long time the Free Democrats jointly stood up for the same cause … It remains to be seen whether the Socialists will do the same for Gyurcsány; this will decide the final outcome,” said political analyst Zoltán Somogyi.

The forint hit a low of 261 to the euro on Monday after the political crisis broke, down from 257 on Friday, on concerns over the government and growing risks that European Union state would break its promises to cut the budget deficit. Nervous investors who hold billions of dollars’ worth of Hungarian bonds are concerned about a possible return to overspending before the 2010 election. Despite assurances by Gyurcsány that the government will stick to plans to cut the budget deficit, which it projects will fall to 3.2% of GDP in 2009, few investors are in a forgiving mood because of past excesses.

Gyurcsány’s Socialists and the Free Democrats won re-election in 2006 on the back of large tax cuts and spending rises, which resulted in the budget deficit ballooning to 9.2% of GDP, the largest in the EU. “Whatever compromise is worked out, the policy outlook is poor. Not only has Gyurcsány lost the ability within his party to push ahead with reform, but he is also unlikely to have wider support for it,” said Silja Sepping, an economist at Lehman Bros. (Reuters, Gazdasági Rádió, Népszava, NG)