European Union finance ministers cleared a €6.5 billion ($8.4 billion) loan for Hungary from the bloc on Tuesday, an EU diplomat said. The loan, to be raised by the European Commission on capital markets, is part of an International Monetary Fund package of $25.1 billion for the central European country, hit hard by the global financial crisis.
“The council (EU ministers) approved the loan for Hungary,” the EU diplomat said.
Hungarian Prime Minister Ferenc Gyurcsány said the package, the biggest for an emerging market economy since the global crisis began, will serve as a buffer for the country to refinance its debt over the next 17 months with better conditions than those currently available in the market.
“This (deal) will not increase the debt stock of Hungary but rather serve as a guarantee that we have somewhere to turn if we are in trouble,” Gyurcsány said.
“I think there is only one case when we may resort (to this loan), namely when a bond matures on which so far the state had been paying 8% and the market would roll it over only at 10%,” he said.
Hungarian bond yields spiked to 13% to 14% prior to the IMF package but by Tuesday, 10-year yields were under 10% and 15-year yields were around 8.6%.
The EU ministers were expected to agree provisionally later on Tuesday to double the bloc's funds available for member states in financial trouble to €25 billion. Hungary is to receive money from this fund.
Under EU law, medium-term loans are available for countries which are “experiencing or are seriously threatened with difficulties in their balance of current payments or capital movements.”
The EU has dusted off the rarely used financial facility to shield economies of ex-communist newcomers from central and eastern Europe from the impact of the financial crisis. (Reuters)