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Hungary seeks to reassure investors
Official says country committed to deficit target after talk about Greek-style crisis.
Last Modified: 05 Jun 2010 14:45 GMT
A centre-right government took office in Hungary last week after eight years of Socialist Party rule [AFP]

Hungary's government is seeking to calm investors and distance itself from comments by officials claiming that the country is close to defaulting on its debts.

Mihaly Varga, the state secretary and a former finance minister, dismissed on Saturday talk of a default as "exaggerated ... and unfortunate.

European officials also sought to allay market fears that Hungary was on the edge of insolvency.

Statements made on Thursday and Friday by several Fidesz party members and government officials compared Hungary's situation with that of Greece and raised the possibility of a budget gap twice as big as planned.

First, a Fidesz official said the country had only a slight chance of avoiding the same fate that Greece is facing.

Next, the prime minister said through a spokesman that he supported the view that Hungary had only a slim chance of avoiding a Greek-style debt crisis, but that his government would act swiftly to avoid the Greek path.

This shocked financial markets on Friday and was seen as one of the reasons the euro fell to four-year lows, the Hungarian forint fell around five per cent and the Budapest Stock Exchange ended 3.3 per cent lower.

High expectations

The Fidesz members' comments were seen by some analysts as aimed at cooling Hungarians' expectations of the new government, which took over last week after eight years headed by the Socialist Party.

Varga said the declarations putting Hungary in the same group as Greece or other countries struggling with huge deficits "do not give a credible view of Hungary's status".

He said Hungary's previous socialist governments had hidden the true state of the country's public finances, and that the centre-right government of Fidesz was committed to the 2010 budget deficit of 3.8 per cent of GDP even if "immediate and urgent" steps were needed to achieve it.

Speaking on the Hungary issue after a meeting of the Group of 20 in Busan, South Korea, on Saturday, Olli Rehn, Europe's commissioner for economic and monetary affairs, said: "Hungary has made serious progress in consolidating its public finances over the last couple of years.

"Any talk of a risk of default is widely exaggerated."

The G-20 includes both advanced and emerging economies, and has recently taken over from the Group of Seven industrialised nations as a crucial priorities-setting group for the global economy.

Source:
Agencies
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