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Almunia urges government to stick closely to convergence program

Prime Minister Ferenc Gyurcsány and Finance Minister János Veres met with EU monetary affairs commissioner Joaquin Almunia in Budapest on Thursday to discuss the government's convergence program, the draft 2007 budget and planned reform measures.

Almunia said at the press conference following the meeting that the austerity program presented a great challenge, adding that the European Commission would pay close attention to its implementation before an assessment planned for April. Cutting a budget deficit is not easy but it is simpler if political parties cooperate, he said. Almunia noted that just a few years earlier, twelve EU members had budget deficits which exceeded the limit. But now, just five countries' deficits are over the Maastricht criteria. "I hope some of them will be able to deal with this problem next year," he said.

Speaking at a conference in Budapest Almunia urged Hungary's government to stick closely to its convergence program and promised the European Commission's support in this endeavor, on Thursday. "I cannot emphasize enough the importance of reducing the general government deficit and the level of government debt," Almunia told the conference organised by weeklies Figyelő and Heti Válasz. The convergence program shows the right direction, but it must be implemented consistently, he said. Asked whether Hungary faces risk of losing its EU development funding if it fails to meet targets outlined in the convergence program, Almunia said the possibility has already been raised "in the corridors of Brussels". Almunia presented to the conference a laundry list for Hungary starting with the fact the country has met none of the Maastricht criteria.

Hungary's inflation rate is well over the Maastricht criterion and consumer prices are set to rise faster in 2007. Yields for Hungary's ten-year bond are the highest in Europe, showing foreign investors are demanding a big risk premium. The shaky forint remains another problem, Almunia said, noting that the forint had weakened 12% in the twelve months to August. Although it has strengthened since, it is still unstable, he said. Almunia also criticized Hungary's high level of state debt, pointing out the country pays about 4% of its GDP on interest for this debt alone. Asked what Hungary's updated convergence program must contain when it is submitted to Brussels again in December, Almunia said structural reforms intended to improve the balance in the medium term should be described in detail. Asked when Hungary could adopt the euro, Almunia said the country has much to do, adding that neither he nor anyone could answer the question. (Mti-Eco)