The crisis is the euro-zone is economic as well as political by nature – Minister of State Cséfalvay said opening his presentation. The Minister of State at the Ministry for National Economy has reminded participants of the forum that the former president of the European Commission warned already in 2001 that certain key buildings blocks were still missing from European integration therefore the region would face an integration crisis. He has also listed which economic and competitiveness issues had triggered the sovereign debt crisis. According to Minister of State Cséfalvay, it was almost evident that cheap credit abundance had created an asset bubble in economies.

In his opinion the most tragic aspect of the growing gap between the Hungarian economy and its regional peers, which process started earlier, is that Hungary has provided relative well-being to its citizens while the state was sinking into debts.

In 2010-2011 the main trend of European crisis management was aggressive cutting of expenditures. However, the larger this reduction is the deeper recession a country can be getting into which in turn results in a downward spiral. That is how the stability-growth paradox occurs – he said. The question, however, is a false one, he concluded. Fiscal stability is a precondition and keeping the state budget deficit below 3 percent of GDP is the cornerstone for that. Implementing reforms in the meantime aimed at boosting competitiveness, which however may increase social tension, is an issue of equal significance.

The nature of reforms, on the other hand, is also significant. Sometimes such measures are enforced by markets (i.e. prompt cutting of expenditures). It may also happen that international institutions insist on a certain reform policy. The third possibility is when a country implements its own economic policy tailored to its special interests. According to Minister of State Cséfalvay, the latter situation has been the reason for the protracted IMF talks, as diverse economic policy concepts continue to be reconciled. This process will one day bring about a deal. The government hopes it happens as soon as possible – he said. The European situation does require a certain type of safety net for uncertain periods. The consensus is that regarding Hungary this instrument will be a precautionary agreement – Minister of State Cséfalvay added.

The Government projects for this year and next a deficit of 2.7 percent and the debt-to-GDP ratio will be placed on a downward path. A profound transformation is currently under way in the public sector which is aimed at achieving greater efficiency and economies of scale in the system. One element of this process, in addition to the reform of local governments, has been the transformation of the pension system. In addition, an extensive tax reform has been completed.

Lowering marginal tax rates also means that it makes more financial sense for enterprises to hire high-skilled employees. Parallel to the lower tax burden on labour and incomes he has also highlighted that levies are higher on consumption.

In his words he never knew what “unorthodox” was to imply: there is a concept of “heterodox” measures, but Hungarian economic policy introduced a string of strictly “orthodox” measures characteristic of supply-side economics – the Minister of State emphasized. The Government and the banks had managed to conclude an agreement which have provided effective remedy for the plight of debtors with foreign currency loans.

Minister of State Cséfalvay identified the tasks which the Government still has to tackle as follows:
1. General government debt reduction to continue and as a precondition, the ratio of state debt to be kept below 3 percent of GDP;
2. Smaller public administration, lower redistribution;
3. A more stable tax system, increasing thereby predictability and confidence;
4. Demand-side measures on the labour market

Source: Prime Minister’s Office - kormany.hu