From the lawmakers’ point of view, this was a necessary measure to improve efficiency and downsize the government by merging institutions with somewhat parallel competencies. Integrating the authority’s tasks of consumer protection and market oversight into the Central Bank, according to Economy Minister Mihály Varga, gives the Bank a wider range of intervention tools to predict and act on future possible financial crises.

Varga added that it was an “economic sin” that the merger didn’t happen much earlier so that Hungary could have possibly prevented the problems we have now from uncontrolled FX loans.

Reading this AFP report and other international media coverage, there seems to be some uncertainties in the international press on how this measure affects Hungary’s relations with the EU. In fact, the government has been considering this move for quite some time. The reason it had been postponed is that it had become subject of a professional and political debate.

On the professional side, as I wrote above, it certainly has efficiency benefits. But on the other, it could be seen and has been seen by some, under the former head of the Central Bank as something that would undermine the Central Bank’s sovereignty and independence. The European Union has been consistent on this issue in the sense that the merger would have benefits, but it should not be carried out against the will of the Central Bank’s leadership.

The new leadership of the Central Bank nominated March 1st is supportive of the merger, but lawmakers still wanted to have an official opinion from the European Central Bank (ECB) before proceeding any further. This measure is the kind of thing that can affect investor confidence, so it seemed wise to proceed with extra care.

Antal Rogán, head of the Fidesz parliamentary group, had emphasized that there would be no action taken on this issue before such an opinion is published. The ECB issued a supportive opinion about the merger in August, emphasizing that the merger should not adversely affect the current tasks of the Central Bank. So, the steps were accordingly taken. Hungary, beginning next month, is going to have a more efficient system to counter potential financial risks.

Source: A Blog About Hungary

This opinion does not necessarily represent the views of this portal, your opinion is welcome too via info@xpatloop.com