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Hungary’s Orban says barriers to IMF aid gone, EU cautious

European Commission President Jose Manuel Barroso welcomes Hungary's Prime Minister Viktor Orban (left) before their meeting at the EU Commission headquarters in Brussels April 24, 2012. — Reuters picEuropean Commission President Jose Manuel Barroso welcomes Hungary's Prime Minister Viktor Orban (left) before their meeting at the EU Commission headquarters in Brussels April 24, 2012. — Reuters picBRUSSELS, April 24 — Obstacles to Hungary's financial aid talks with the IMF have been “practically removed”, Prime Minister Viktor Orban said today, but the European Commission's top official insisted after a meeting between the two that more discussion was needed.

The EU's executive Commission, at odds with Orban over his overhaul of the Hungarian constitution and hundreds of laws, halted talks on an IMF loan last December, citing legislation the Commission believes undermines the independence of Hungary's central bank.

“We got very close to being able to achieve a breakthrough (on outstanding issues). This is a question of days, maximum weeks,” Orban told reporters after meeting European Commission President Jose Manuel Barroso in Brussels.

“This also means that the obstacles to starting negotiations with the IMF have been practically removed,” he said.

However, diplomats cautioned that Budapest had yet to win over the European Commission in the dispute over the independence of the Hungarian central bank.

Barroso is due to brief EU commissioners tomorrow, where they could decide to endorse Budapest's policies or push for more changes to the central bank law.

Barroso's office sounded a cautiously positive note after his meeting with Orban, but gave few details.

“President Barroso welcomed the commitments made by Prime Minister Orban on the prompt and full implementation of the measures regarding the independence of the central bank announced by the Hungarian authorities,” Barroso's spokeswoman said in a statement.

Changes to the central bank law could pave the way for talks to resume, as EU Economic and Monetary Affairs Commissioner Olli Rehn said in January the issue of the bank's independence needed to be solved before negotiations on a stand-by loan.

Hungary's central bank kept rates at 7 per cent for the fourth consecutive month today, in an effort to prop up Hungary's forint and debt markets, which have been buoyed by hopes that Budapest will soon obtain an IMF stand-by loan.

Central bank in focus

At the heart of the dispute are Hungarian moves to cut the pay of the bank's governor and senior officials, breaking EU law that prohibits such reductions during a governor's tenure.

Orban, who has accused the IMF and the Commission of delaying loan talks with “preconditions”, argues the cuts are part of a public sector-wide salary reform and not directed at the central bank.

Orban's office said in a statement the government would push through proposed changes to the bank law swiftly and consult further with the European Central Bank, but the salary question would remain.

“Orban said in the meeting he could not lift the salary cap, so it is up to President Barroso to decide whether he agrees with the prime minister,” said one EU diplomat briefed on the meeting between the two men.

Peter Attard Montalto, an analyst at Nomura, said Orban may be too optimistic on winning over the IMF and the Commission.

“The very fact Orban says he will not compromise on the National Bank oath or wage issues also points to fact that talks are not about to start, in my mind,” Montalto said, referring to an oath of office for Hungary's central bankers. — Reuters

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