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Hungary and the adoption of the euro. Central bank vice president Barnabas Virag comments

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We would like to successfully and safely introduce the euro in Hungary – said vice president of the Hungarian National Bank (MNB) Barnabas Virag to Portfolio portal. He added that “the euro itself is not the end of the road, but an important stage, and the aim is to successfully continue convergence by the Hungarian economy”.

He considered it important to initiate a professional and evidence-based debate on when and how the country should adopt the euro.

– The date of introducing the euro must be determined not on the basis of half-truths and political slogans, but on a cold analysis of benefits and losses – he stressed.


“There are some red flags”

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Virag emphasized that in recent polls, support for the introduction of the euro in Hungary is 60-70%, but if we ask, do we want the Hungarian economy’s development to reach the EU average in 10-15 years, probably 100%? people would be in his opinion in favor.

– The task of economic policy is precisely to establish the right strategy between these two goals – he stressed. He added that for Hungary the situation of later joining the euro zone is favorable, because “we can analyze all previous experiences on the example of countries that entered (there) earlier”.

– There are several red flags that we must take into account. Early acceding peripheral countries, such as Italy and Greece, lost a quarter of their initial level of development within two decades. But a serious setback in this respect also occurred in Portugal and Spain. (…) I do not want to say that the only reason was the euro, but it is certainly an important element of the picture – he said.

“The example of Slovakia shows it”

In his opinion, it is necessary, firstly, to define a system of criteria on the basis of which it will be possible to properly assess the willingness of the Hungarian economy to adopt the euro, and, secondly, to develop a strategic plan ensuring competitiveness, constant productivity growth and, at the same time, budgetary room for maneuver to ensure that the economic gap between Hungary is reduced. and Western Europe after joining the euro area.

He considered a rapid decline in real interest rates after the introduction of the euro as a risk factor that should be avoided, which negatively disturbs the balance of the current accounts balance. This, according to him, was the case of the countries of southern Europe. – In addition, it is a common phenomenon that the strong reform impulse that lasts until the introduction of the euro then turns into a calm state. This is demonstrated by the example of Slovakia, where the previously successful convergence has stopped in the last 10 years, he said.

He added that the Czech Republic and Poland are important partners of Hungary and “if they decide to introduce the euro, Hungarian strategy will have to be reassessed.”

“Sooner or later mechanisms must be found”

Asked whether having a currency of its own served or hurt Hungary during the pandemic, he replied that it would only be possible to judge it after the end of the last wave, but for now it seems that Hungary is recovering from the economic crisis faster than most Western European countries. – Our independent monetary policy played a key role in this – he pointed out.

When asked if the eurozone would still exist when Hungary was ready to join, Virag pointed out that the current form of the zone was not perfect and certainly not final, and that the institutional system was constantly changing and responding to external impulses.

– So far, the euro has brought divergence instead of the real economy convergence expected at the moment of its introduction. The development of southern European countries has stopped, and at the same time they have accumulated huge debts. Sooner or later, mechanisms must be found to reduce the huge gap between North and South today, he said.

In his opinion, if the necessary reforms do not take place, the tensions in the euro area may reach such dimensions that it will only induce further expectations of countries that have not yet adopted the common currency.

Poland and Bulgaria and the euro

As for Poland, this the number of supporters of the introduction of the euro has increased by 8 percentage points and more than half of the Poles surveyed support this idea.

In turn Bulgaria maintains its willingness to adopt the euro from January 1, 2024 – representatives of the local government and the central bank informed three weeks ago. Bulgaria, one of the poorest member states of the European Union, was admitted, together with Croatia, to ERM II in July last year. This is a mandatory stage before joining the euro area.

Main photo source: Shutterstock

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