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Hungary to Confront EU on Issues as Aid-Talk Obstacles Mount

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March 6 (Bloomberg) -- Hungary is ready to go to court over disputes with the European Union, said Janos Lazar, head of the ruling Fidesz party’s parliamentary group, in a move away from a pledge to resolve issues quickly to secure a bailout.

The European Commission will decide tomorrow on the next steps in so-called infringement procedures concerning the independence of Hungary’s central bank, judiciary and data protection agency. “Some” of the issues will end up in court while others will be agreed on, Lazar told M1 television today.

The disagreements with the EU have prevented Hungary from starting aid talks, which the Cabinet requested in November as the forint fell to a record against the euro and the country’s sovereign-credit grade was cut to junk. Premier Viktor Orban’s Jan. 5 pledge to come to a “quick” agreement with the EU and the International Monetary Fund fueled the biggest currency rally this year. Two months on, IMF talks have yet to start.

“Before I said there would be a deal as the market would force the government into it,” Peter Attard Montalto, a London-based economist at Nomura International Plc, said by e-mail today. “Now I have flipped this around - there will be no deal unless the market forces the government into it.”

Forint Drops

The forint weakened 1.5 percent against the euro this week as investors including at BlackRock Inc., Citigroup Inc. and Royal Bank of Scotland Plc speculated that the rally may fizzle if the government fails to obtain an IMF loan quickly. The forint traded at 293.6 at 2:00 p.m. in Budapest, the lowest level in almost three weeks. The forint pared its gains against the euro to 7.3 percent this year, the third-best performance after the Colombian peso and the Polish zloty.

While Hungary replied to written questions from the commission on the infringement cases, its answers were “vague,” Viviane Reding, the EU’s justice policy chief, said yesterday.

“Brussels got used to negotiating with the weak leaders of a weakling country” during the previous government, Lazar said in an interview with the Budapest-based channel today. “At last there is a determined Hungarian representation in Brussels. The government is quite right to act in a determined way.”

Hungary needs to adjust laws ranging from the regulation of the central bank to the overhaul of the judiciary to meet EU preconditions to begin talks. The IMF requests that Hungary take “tangible steps” showing a willingness to engage on “all the policy issues relevant to macroeconomic stability,” Managing Director Christine Lagarde said on Jan. 12.

Separately, the European Commission, the EU’s executive arm, proposed last month to suspend 495 million euros ($653 million) in development subsidies to press Hungary to narrow its budget deficit. EU finance ministers will this month approve the proposal in “all certainty,” Peter Szijjarto, Orban’s spokesman, said in an interview on TV2 television yesterday.

To contact the reporter on this story: Andras Gergely in Budapest at agergely@bloomberg.net

To contact the editor responsible for this story: Balazs Penz at bpenz@bloomberg.net

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