In an interview with CNBC on Friday he said problems would have arisen even outside the euro zone without the deal, because market sentiment would have suffered a blow. He reiterated that a budget deficit of around 4.0% of GDP remains achievable in Hungary if the next government sticks to the rigorous fiscal policies the technocratic cabinet has been pursuing for about 18 months.

Been there, done that

Speaking before a European summit where Greece topped the agenda, Bajnai told the Financial times on Wednesday: "From the position of 'been there, done that, got the lousy T-shirt', I can say that Greece does need the sort of solidarity that Hungary has received."

A deal at last

At the summit, a deal was brokered by German Chancellor Angela Merkel and French President Nicolas Sarkozy, saying each euro-region country would provide non-subsidized loans to Greece based on its stake in the European Central Bank (ECB).

"Euro area members reaffirm their willingness to take determined and coordinated action, if needed, to safeguard financial stability in the euro area as a whole," the 16 EU members said in a joint statement on Thursday.

"As part of a package involving substantial International Monetary Fund financing and a majority of European financing, euro area member states are ready to contribute to coordinated bilateral loans."

"This mechanism ... has to be considered ultima ratio, meaning in particular that market financing is insufficient. Any disbursement on the bilateral loans would be decided by euro area member states by unanimity, subject to strong conditionality and based on an assessment by the European Commission and the European Central Bank. We expect euro member states to participate on the basis of their respective European Central Bank capital key."

The statement did not provide details on the size of any aid package, but Reuters reported that aid would total between EUR 20 bn to EUIR 22 bn (USD 29.2 billion).

Participation reports are contradictory. Some say Europe would provide more than half the loans and the Washington-based IMF the rest, while others claim euro zone countries would fund two-thirds of the aid, with the IMF providing a third.

Workable solution

"Not finding a solution for Greece would have been a problem for all of us, even outside the euro zone, for Hungary as well, because it would have rocked market sentiment," Bajnai told CNBC on Friday.

"I believe the solution they find is workable, because it is building on the expertise and reputation of the IMF while creating the necessary level of European solidarity, which Hungary was part of 18 months ago," he added.

Hungary was the first in the EU to seek international help to save it from meltdown when the crisis hit in late 2008. It received a USD 25.1 bn credit facility by the IMF, the European Commission and the World Bank, but a successful crisis management programme pulled it back from the edge of the precipice. While about EUR 825 million (USD 1.1 bn) is still available, local authorities do not intend to draw this amount.

Inevitable pain

For two years, until last week, we’ve heard from all prime ministers in the euro zone that the IMF would not participate in a rescue plan in a euro zone country. Now this complete change of mind is creating credibility problems for the euro. Even the European Central Bank (ECB) said before it was very bad, CNBC underlined.

"The euro zone was missing certain institutions and solutions to this unexpected problem. Greece is facing similar issues as Hungary did before. But it needs to do its homework. It’s not going to be easy, it’s painful, but to do you homework you need time. This decision is creating breathing space [for Greece] to do its job. The results in Hungary show that this is a workable solution," Bajnai replied.

IMF package would have been cleaner

Nouriel Roubini, the New York University professor who predicted the financial crisis, said a rescue plan for Greece by the IMF would have been "cleaner" than the deal endorsed yesterday by leaders of the 16-nation euro region.

"It’s a compromise between the German views where they wanted to have a greater role of the IMF in the support of Greece and the views of the rest of the euro zone, especially France, where they wanted a European solution," Roubini said in a Bloomberg TV interview today.

"An IMF solution would have been a cleaner one because the IMF has the experience" in providing financial aid to struggling countries.

At the World Economic Forum in Davos, Switzerland, Roubini said he did not much care for the nickname "Dr. Doom" anymore.

CNBC viewers and CNBC.com readers wrote in with their suggestions to find a new nickname for the professor. After it was narrowed down to the most popular ones, and about 1,400 votes later, "Roubini the Realist" won with 25% of the votes, beating "Sir Fretalot" only by a hair (24%). Other suggestions included "Dr. Know" (17%), "Dr. Real" (17%) and "Dr. Toldya" (17%).

Social acceptance

To a question whether too stringent fiscal targets would create political backlash - especially as the Socialist Party (MSZP) is facing a tough election in April -, Bajnai replied Hungary’s crisis management programme proved to be successful. "Hungary is stabilised now", and it has achieved this state very quickly.

"Obviously, one of the key aspects of such programmes is to gain social acceptance," he said, also underlining some large differences between Greece and Hungary in this regard.

First, he said, Greece is member of the euro zone, "so the man of the street does not feel immediately the problems [stemming] from market sentiment. Whereas in Hungary there were 1.7 million families that had taken out foreign currency loans therefore the depreciation of the forint sent a quick message to them that there was a problem. Acceptance was very strong. Hungarians were wise enough to accept this crisis management programme quickly."

Hungarian budget on track

Hungary aims to trim its budget deficit to 3.8% of GDP this year from 3.9% in 2009, but main opposition party Fidesz, which is widely accepted to defeat the Socialists in the April elections, claims the 2010 budget is a "work of fiction" saying the true figure could be double the cabinet’s goal. This could trigger a renegotiation of the IMF credit facility.

Bajnai reminded that Hungary is in the middle of an election campaign. Apart from the opposition party "everybody - analysts, the IMF, the OECD, the Hungarian independent council on the budget - agree that the deficit would be around 4.0% of GDP," Bajnai said.

Portfolio.hu viewpoint:
Hungary's independent fiscal review body, the Budget Council, said on Thursday that the 2010 budget deficit could reach 4.2% of GDP instead of the current government target of 3.8%.

Unless the government applies further economic policy measures, higher interest payments and other factors could widen the negative gap between state revenue and expenditure, Council Chairman György Kopits told reporters.

The IMF warned earlier this week that "strict expenditure control, cautious use of contingency buffers, and readiness to take further action if necessary are required to meet the fiscal targets."

If Hungary intends to put government debt firmly on a declining path, "additional structural measures will be needed," it added.

The analysts’ outlook on Hungary’s budget in the latest monthly Reuters poll has become worse than before, with the median of estimates coming to 4.8% of GDP with regard to the 2010 shortfall.

Bajai played down the opposition’s warnings about a massive overshoot by saying their warnings are but "campaign talk".

"There is no alternative for Hungary but to keep the strict economic policy, which has proven very successful. I’d expect Hungary to remain on this track after the elections and that it will stick to the policies that can lead to euro adoption in the coming years."

Greece must grit its teeth

Regarding the IMF’s involvement in the rescue of Greece, there are concerns that the rigorous implementation of austerity measures, although not as timely as in Hungary, will lead to deep recession lasting longer, making things even worse, as tax revenues would come under pressure.

"In such situations you can only introduce pro-cyclical policies, because you are reducing domestic demand by the austerity programme. But there is no alternative but to restore equilibrium first. Greece has undertaken to cut spending by 4% of GDP. Hungary did 5%," Bajnai said.

"I believe the message of Hungary is that short term you have to take this pain, including a probably deepening of recession in order to improve growth prospects for the medium and long terms. The most important is to have healthy fundamentals and a long-term growth path so that Greece and Hungary can grow out of their indebtedness. The case of Hungary shows that it’s possible."

Source: Portfolio Online Finacial Journal