Case 2: Hungary
Does east follow west to the euro?
Fiscal slippage in Hungary has become entrenched. But will the package of measures outlined by Hungary’s government earlier this summer to deal with the country’s challenging economy be effective? “The jury is still very much out,” says Edward Parker, head of emerging Europe sovereigns at Fitch Ratings. “Even the definitions of the targets that the government is aiming for are not very clear, although this should be clarified in September.” This is when the government submits its new euro convergence plan to Brussels and the European central bank.
What worries many analysts is that most of the fiscal adjustment measures that have been announced are on the revenues side rather than the expenditures side. “Studies of past fiscal retrenchments show that the successful ones take place mainly on the expenditures side, rather than putting up taxes on business and so on,” argues Parker.
“Also, the government has a bad track record of missing its budget deficit targets by pretty spectacular amounts every month. The sheer scale means that it will be very difficult to deliver.”