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Gyurcsány may still offer best hope, says EU

Hungary’s prime minister has not just deceived his voters since coming to power in 2004: he also tried to hoodwink the markets, Brussels and the European Central Bank into believing he had his country’s public finances under control. On Tuesay, however, many in the international community were still prepared to believe Ferenc Gyurcsány is the best person to get Hungary out of its fiscal hole. Gyurcsány may have lied his way to a general election victory, but many were taken by surprise with the brutal honesty with which he confronted Hungary’s economic problems once the polls were closed – including putting up taxes after promising to cut them. Joaquín Almunia, EU monetary affairs commissioner, said in July: “I can state for the first time that the Hungarian government has approved a package of measures to reduce the excessive budget deficit that is strict and serious.” On Tuesday Almunia’s spokeswoman urged the Hungarian leader to stick to his austerity program that aims to cut the deficit from a projected 10% this year to 3.2% in 2009. “I recognise the measures to achieve this result are obviously painful,” she said. With a solid parliamentary majority backing his austerity program, the commissioner’s aides privately believe Hungary’s stability may be best aided by Gyurcsány staying in office. Almunia will be watching the prime minister closely to make sure he now keeps his promises to the European Commission in the face of fierce public opposition. In 2005 Gyurcsány infuriated Almunia when he used creative accountancy to massage down the deficit data, a ruse only picked up when Hungary’s central bank blew the whistle. The Hungarian prime minister claims to have learnt his lessons and admits his country’s image has been tarnished. “We have to rebuild our credibility: the markets, Brussels and analysts need evidence, not promises,” he told the FT earlier this month. In an interview in Luxembourg, Gyurcsány admitted hopeless optimism in his deficit forecasts. He hoped voters would see the benefits of economic and welfare reforms by 2009. In the meantime, he hoped the international credibility conferred on his austerity program would boost his standing domestically. Gyurcsány insisted he would not use Brussels as a scapegoat for his reforms, although the sight of demonstrators in Budapest tearing down an EU flag suggests tempers are fraying. Alexandra Dobolyi, European parliament member and ally of the prime minister, said on Tuesday: “There was no substance to it. If it had been the flag of the US, NATO or even Budapest they would have pulled it down.” However Brussels will be watching developments anxiously. Euroscepticism and nationalism is already on the rise in neighboring Poland and the Czech Republic: until now Hungary has remained generally positive about EU membership. The markets were also spooked by the rioting, but many analysts have faith in Gyurcsány’s ability to transform from serial liar to economic hardman. “The credibility of the reform program is tied up with his position,” said Juliet Sampson, emerging markets strategist at HSBC. “If he goes, any successor would have an even greater challenge in establishing and maintaining credibility.” (