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Hungary will focus on growth, deficit, not euro date

“The actual date of introduction has minor importance,” Kóka said in an interview in London yesterday. “It's important to set a convergence plan along which we will securely arrive into the euro zone with a stable economic environment.” Prime Minister Ferenc Gyurcsány’s government in July scrapped a plan to switch to the common currency in 2010. The EU earlier this week endorsed the government's program to bring the budget shortfall within the bloc's limits by 2009. That would allow euro adoption in 2011 though it won't automatically follow, Kóka said. “We can make a wise decision on the date of the actual euro introduction” when meeting the criteria, he said. Hungary told the EU it will cut the deficit to the required 3% limit by 2009 from an estimated 10.1% of GDP this year. EU grants worth €23 billion ($29 billion) through 2013 may be lost unless the pledges are met. Gyurcsány, who is raising taxes and cutting subsidies to slash the shortfall, pledged to defy public opposition.

“When you are facing a more than 10% deficit you do not have a choice,” he told reporters in London yesterday. The government has said the measures will accelerate inflation and slow economic expansion. GDP growth may slow to about 2.2% next year from this year's 4.1%, while consumer prices may rise 6.2% next year after 3.7% this year. Still, Kóka said the government will seek to rekindle economic expansion by maintaining export growth and the inflow of foreign direct investment, Kóka said. He aims to match this year's export growth of 15% and FDI total of €4 billion. Next year's growth may be “closer to 3%,” Kóka said. “I wouldn't predict 2%” in 2007. If export and FDI “intensity is untouched, we will survive this.” EU finance ministers on October 10 labeled Hungary's deficit-cutting plan realistic. They still consider the country's economy at “high risk” and urged the government to present more measures to support the plan in six months.

The government will overhaul health care, education and public services and has the backing of its parliamentary majority, Kóka said. Gyurcsány, who came under pressure to resign last month after it was revealed he lied about the economy to win elections in April, said it was his government's shying away from the painful truth that led to them misleading the public. “If you ask me if we were brave enough to face the challenges, I would say no,” Gyurcsány said. “When I am speaking about lying it is a reference to public sentiment which believes that we might have higher personal welfare without higher achievement and we supported this kind of sentiment. Now, the bill has arrived and we have to pay.” (Bloomberg)