ECB Has Serious Concern About Hungary Central-Bank Independence

The European Central Bank said it has “serious concerns” about the independence of the Hungarian monetary-policy authority even after the government amended legislation to meet conditions to start bailout talks.

“The ECB reiterates its observations” that “constant changes in the composition of the Magyar Nemzeti Bank’s decision-making bodies” give rise to “serious concerns whether this could be used to influence the decision-making process to the detriment of central bank independence,” the ECB said in a legal opinion on a draft law amending central bank legislation, dated April 5.

The European Commission, the EU’s executive, on March 7 took a formal step toward seeking a court order to require Hungary to redraft laws on the judiciary and the data-protection agency and asked for more information on planned changes to a new central bank law within one month. It may take as long as seven weeks to assess Hungary’s response, the European Union said today.

Prime Minister Viktor Orban, who’s battling to avert a recession, asked the EU and the International Monetary Fund for a bailout in November as the forint fell to a record low and the country’s credit rating was cut to junk. Talks have yet to start as Hungary has failed to show that independent institutions such as the central bank are free of government influence.

The ECB “strongly recommends not deleting” an article establishing that the central bank governor, his deputies and other members of the Monetary Council “may be dismissed only if they no longer fulfill the conditions required for the performance of their duties or have been guilty of serious misconduct,” according to the document.

“Neither the Fundamental Law nor the Law on the MNB would specify whether the Parliament or Hungary’s President are empowered to dismiss the Monetary Council member,” the ECB said.

To contact the reporter on this story: Jana Randow in Frankfurt at jrandow@bloomberg.net

To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net

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