EC launches procedure against Hungary over FX loan restrictions

The government's measures [to restrict foreign currency lending] were aimed at correcting mistakes clearly made by previous governments led by [Ferenc] Gyurcsány and [Gordon] Bajnai, he said. The Commission has launched the first phase of an infringement procedure against Hungary citing concerns over restrictions in foreign currency lending, the organisation said on its website on Wednesday.
   

The Commission has sent an official letter of warning to Hungary on grounds that a government decree passed in July 2011 violates the free movement of capital, a key European Union principle. The decree had put in place a restriction that a client is only eligible for a foreign currency-denominated loan if their gross monthly salary, earned in the currency of the loan for which they applied, exceeded a sum equivalent to 15 times Hungary's minimum wage, calculated in forints.
   

The Commission considered the restrictive decree to have exercised too much control over forex lending. Although the Commission found the goal of reducing Hungary's excessive foreign currency debt legitimate, it believes that the tools used to achieve this goal are not proportionate to the aim, an anonymous source told MTI. Instead of de facto eliminating foreign currency lending, a tightening of consumer protection regulations or stricter credit conditions among other legal tools could have been employed, the source said.
    Giró-Szász told MTI that if similar restrictions had been put into place under the Gyurcsany and Bajnai governments, like they were in Poland, there would not be hundreds of thousands of people subjected to uncertainty due to forex loans taken out at the time.
   

"The government's primary task over the past three years was to employ the full array of government tools to help the people in this situation and give them as much opportunity to free themselves from unfair burdens as possible," Giró-Szász said. He added that the government's measures now criticised by the EU intended to prevent such a situation from happening again.
   

The National Economy Ministry told MTI in a statement that the government still considers foreign currency loans high-risk products which should be restricted with prudential and consumer-protection regulations. The government is ready to discuss its measures with the Commission, the statement said.
   

The high proportion of mortgages in the Hungarian population and the high level of FX loans are among the worst inheritances of earlier Socialist governments, it said. This is why in the summer of 2010, one of the first decisions of the new parliament was to ban forex retail lending. But, as denying borrowers access to FX mortgages went against EU principles, the government reopened the possibility of such lending, but with more stringent conditions, the ministry said.