April 24 (Bloomberg) -- The European Commission saluted Hungary’s planned overhaul of a central bank law, potentially moving closer to opening bailout talks with the economically troubled country.
The commission is “satisfied” with revisions to a law that threatened the central bank’s independence, spokesman Cezary Lewanowicz said after commission President Jose Barroso met Hungarian Prime Minister Viktor Orban in Brussels today.
The commission’s chief “is satisfied with this personal political commitment of Prime Minister Orban,” Lewanowicz said. The commission, the European Union’s executive arm, will discuss the possible start of aid talks tomorrow.
Orban’s move to limit the autonomy of the central bank loomed as the biggest obstacle to the start of negotiations over European and International Monetary Fund financial aid requested by Hungary last November when the forint plunged to an all-time low and the country’s credit grade was cut to junk.
The currency rose 1.1 percent to 296.39 per euro at 4:33 p.m. in Budapest after falling to a three-month low yesterday. The currency dropped 3.4 percent since rising to a five-month high on Feb. 21 as investor faith wanes in Orban’s willingness to cut a deal with the EU.
The currency plunged 15 percent in the second half of last year, the most in the world, before paring losses after the Cabinet pledged Jan. 5 to reach a quick deal on an IMF loan.
Orban left Brussels with the sense that bailout talks were drawing closer.
“The obstacles to starting talks with the IMF have essentially been surmounted,” Orban told reporters. The start of talks “is a lot closer than most people think.”
Hungary’s government submitted amendments to the central-bank law on April 17, heeding some of the commission’s concerns while ignoring a European Central Bank opinion on what the government needs to do to ensure monetary-policy independence. The ECB on April 5 said “serious concerns” remained about the law.
The government agreed to scrap an option to demote the central bank president if the monetary authority is combined with the financial regulator. The amendments don’t address the EU’s concern for a 75 percent cut in the Magyar Nemzeti Bank president’s salary or ECB objections to the planned enlargement of the rate-setting Monetary Council.
Barroso “welcomed” Orban’s pledges for “the prompt and full implementation” of the revisions to the central bank law, the commission said in an e-mailed statement today. Barroso also acknowledged Orban’s commitments on the other outstanding issues of the judiciary overhaul, the data protection authority and the retirement age of judges, according to the statement.
The two politicians discussed Hungary’s request for financial assistance, it said. Orban has striven to get the EU to treat disputes over the central bank and justice system separately from the aid negotiations.
“Disputes within the EU need to be separated from financing packages,” he said. “Linking the two may be justified in peace time, but only makes things more difficult in hard times.”
The government also submitted amendments to parliament on the judiciary, reducing the power of the new head of the court system.
On the data-protection authority, parliament, where Orban’s lawmakers have a two-thirds majority, has approved changes limiting the prime minister’s influence over the firing of the independent commissioner. The change failed to address EU objections over the removal of the country’s data-protection commissioner last year.
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