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Hungary intends to join ERM-2 in 2010

Prime Minister Ferenc Gyurcsány told the Financial Times that he aimed to have Hungary join the European Exchange Rate Mechanism-2 (ERM-2), an exchange-rate mechanism for countries that wish to adopt the euro, before Hungary's next parliamentary elections expected to take place in 2010.

“We think there will be both a decrease in the liquidity and the credit margins [earned by banks],” Gyurcsány told the Financial Times.

Goldman Sachs London-based analysts said on September 19 that Hungary was in no position to decide on a date to join the ERM-2 due to political instability in the country. The analysts added that Hungary could join the ERM-2 in 2009 if Prime Minister Gyurcsány's current minority government or a potential new coalition can successfully implement the 2009 budget with the targeted 3.2%-of-GDP general government deficit and if the country's inflation rate continues to be low.

BNP Parisbas analysts recently predicted that Poland could join the ERM-2 early in 2009, which could prompt Hungary to accelerate its own process of euro convergence. The BNP analysts said Hungary is likely to join the mechanism during the second half of 2009.

Prime Minister Gyurcsány told the paper that Hungary would escape the worst of the global financial crisis because its markets were relatively conservative and not developed. However, Gyurcsány told the newspaper there were worries about foreign-owned banks in which the parent bank had liquidity or capitalization problems at home. “This will also have an impact on Hungary,” Gyurcsány said.

“I talked to the leaders of the Hungarian financial markets and the central bank. Our common judgment was that this global financial turbulence might not have a very direct effect on the Hungarian economy,” Gyurcsány told the Financial Times. (MTI – Econews)