BRUSSELS (MNI) – The European Commission said Tuesday that it could
take legal action against Hungary if it concludes that Budapest’s
decision to appoint key figures to the central bank violates EU law on
the independence of national central banks.

The Commission also warned that the move by the Hungarian
government could jeopardize negotiations over a financial aid package
for the country.

Hungarian Prime Minister Viktor Orban last month pushed through a
controversial new constitution giving the government the right to
appoint members of the central bank’s rate-setting council. The new
constitution took effect January 1.

A spokesman for the Commission said that Brussels would analyse the
text of the new law in the “next few days” to see if it violates the EU
treaty, which says that central banks “may not receive instructions from
any national authority.”

The Commission also warned that the law risks Hungary’s chances of
securing financial assistance from the EU and IMF.

EU and IMF officials cut short preliminary talks in Budapest in
December because of the government’s intention to pass the law, and the
two institutions have “not yet decided whether to come back to Budapest
for the start of formal talks on financial assistance,” the Commission
spokesman said.

Hungary’s government last year requested an aid programme to help
it cope with surging borrowing costs and a plummeting currency, just one
year after quitting a previous E20 billion programme with the EU, IMF
and World Bank.

Investors have been shunning the country for its use of unorthodox
economic policies including special taxes on the finance, energy and
telecoms sectors, and its nationalization of pension fund assets.

Turning to Greece, where talks between the government and private
bondholders are proving difficult, the Commission confirmed that
discussions with the IMF and Eurozone finance ministers over a second
aid programme for Athens would resume this month.

However, the spokesman said that a second bailout program was
contingent on the conclusion of a debt reduction agreement with Greece’s
private sector creditors.

The spokesman rejected the idea that Greece might ultimately leave
the Eurozone. “For us there is no intention, no plan, to have a member
state out of the euro area in 2012 or later,” he said.

–Brussels bureau: +324-9522-8374; pkoh@marketnews.com

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