Hungary's central bank is at fault for increasing the country's debt level beyond the limits for euro adoption, former Prime Minister Péter Medgyessy said in an article published in Népszabadság.
“The bank perfectly mistrusted the government,” wrote Medgyessy, premier from 2002 to 2004. “The unwarranted high level of interest rates grossly increased the government's expenses, chasing economic policy into a vicious cycle.” Medgyessy said the bank, which had cut its benchmark rate seven times in five months before he took office, for erasing half those cuts within three months of the vote. The former premier missed budget deficit targets every year in office and Hungary hasn't met its annual goals since. A telephone message left for spokesman Gábor Missura at the central bank seeking comment wasn't immediately returned. Public debt is set to rise to 72.3% of gross domestic product by 2008 from 62.3% last year, according to the government's projection. That's above the 60% limit for euro adoption. Medgyessy was forced out amid a coalition dispute and the lowest support for his Socialist Party in three years. He was replaced by Ferenc Gyurcsány, who led the coalition to a second consecutive term in the April election and stared measures to cut the budget shortfall, the European Union's widest. “It has been obviously proven by now that the switch of prime ministers was at the right time and was successful and fruitful for the coalition,” Medgyessy wrote. “The new government's reform momentum is unquestionable.” Gyurcsány raised taxes and cut subsidies to trim the shortfall and wants to overhaul the country's health care, education, pensions, local governments and public administration. That may be too much, according to Medgyessy. The government “is overreaching on reforms,” Medgyessy wrote. Overhauling that many sectors of the economy “isn't possible to carry out -- it results in frittering away energies and opens fronts against all social strata.” Medgyessy is now a traveling ambassador in Gyurcsány's government. He may be the premier's choice to replace central bank President Zsigmond Járai when his term expires next March, Web site Hirszerző said in April. (Bloomberg)