Orbán said there was no point in discussing long-term questions with the International Monetary Fund -whose mission walked away from fiscal review talks along with the EU team on Saturday - because Hungary’s loan agreement with the lender expires in October anyhow.

He added that Hungary would need to reach an agreement with the European Union and not the IMF as to the how it wants to achieve the deficit reduction.

"It is not the IMF but the EU we need to agree with as to how we will lower the budget deficit from 3.8% of GDP this year to below 3% as expected by the EU. But we still need to discuss that with the EU and we will," Orbán said, adding that next year’s budget will be formed depending on the outcome of these consultations.

The PM emphasized yesterday that the 3.8% target is the only specific demand lenders have towards Hungary.

"There is a single fact registered in this agreement (with the IMF), namely that Hungary must have a budget deficit of 3.8% (of GDP) in 2010. Aside from this, on every other issue, the talks between the IMF and Hungary have no bearing. Our agreement says nothing about how we should achieve this target. This is our exclusive national responsibility, the selection and timing of tools," Orbán said.

"I have reassured everyone -- investors and IMF specialists -- that Hungary will not have a deficit of more than 3.8 percent by the end of the year," he said. "And with this, our contract with the IMF runs out. From that moment on, we must no longer deal with the IMF but with the European Union."

Merkel noted that although Hungary was not a member of the euro zone, as an EU member it also needed to respect the bloc's budgetary rules limiting deficits to 3% of GDP.

"I think Hungary has taken very energetic steps in the last few years to meet the demands of deficit reduction," Reuters cited her as saying.

Portfolio.hu viewpoint:

Angela Merkel’s above remark implies Hungary has no choice but to meet its fiscal obligations, i.e. to cut its deficit to below 3% of GDP. The previous administration pledged to meet that goal in 2011 (2.8%), but comments by Fidesz politicians over the past days cast some shadow over the achievability of this objective.

Berlin is not the first place Hungary receives such a clear message from. Brussels made a similarly stern statement in early June for the new government. Then José Manel Barroso, President of the European Commission, indicated that continuing fiscal consolidation, meeting the deficit targets and go on with structural reforms was important not only for Hungary but also for every single EU member state.

"Difficult decisions will be needed, not only on the revenue side, where the high financial sector levy, which is planned to be temporary, but also on the spending side," the IMF said in a statement on Saturday, announcing its departure from the talks.

The Fund praised Hungary for measures already taken, but stressed that the fiscal deficit targets "remain an appropriate anchor for the necessary consolidation process and debt sustainability and should be adhered to, but additional measures will need to be taken to achieve these objectives."

Bank tax on the menu

Both Orbán and Merkel stood beside the implementation of a special levy on the financial sector in Hungary.

The PM came to Berlin for a one-day visit and had a nearly two-hour talk with the German Chancellor in her office.

Answering a question by Hungarian newswire MTI they both said at a joint press conference after their meeting that the special levy on the Hungarian financial sector was an important measure.

In this regard Merkel talked about the special surcharge as it was some kind of a crisis-averting precautionary measure, Orbán stressed that such immediate action is needed to reduce the budget deficit and ensure growth.

Merkel said the break in the talks between the IMF and Hungary has no bearing whatsoever on the relation between Hungary and Germany. She said she hoped Hungary will return to the path of long-term stability soon. In this respect Merkel called the 3.8% of GDP deficit target a good step.

EU ready for talks

The European Union is ready to work with Hungary to find common ground on issues outstanding after the suspended review of the country's EUR 20 billion funding deal, an EU commissioner said on Wednesday.

"The most important sort of solidarity is respecting our commitments that we selected together. That holds here as well as in Paris, Berlin, or elsewhere," Reuters cited European Internal Market Commissioner Michel Barnier as telling a press conference today.

"We will continue to work (with Hungary). We expect this constructive spirit of cooperation from Hungary in order to find strict but at the same time effective compromises on issues outstanding."

Barnier said he would meet PM Orbán for talks on Thursday."

Source: Portfolio Online Financial Journal