András Simor | Dávid Harangozó

Euro adoption is a must for Hungary

October 15, 2012

The sovereign debt crisis in Europe is having a negative impact on even non-eurozone countries like Hungary, but that does not diminish the need for Budapest to introduce the euro, Hungarian National Bank Governor András Simor said in Tokyo on Sunday.

"It is not a question of if, but it's a question of when," he said when asked during an interview with Kyodo News if Hungary should adopt the common currency. However, given the crisis, he added that "we need to learn from the mistakes that other countries have made who have joined but not that successfully."

The President of the National Bank of Hungary (NBH) is quoted by the financial website by saying that switching the currency from the forint to the euro would mean that the country will lose a "tool of adjustment." Also, beyond fulfilling the Maastricht euro convergence criteria, Hungary needs to be better prepared – in such areas as labor and budget – than some countries that joined the euro-zone before.

Simor said joining the euro is "very important" because of Hungary's already strong link to the euro-zone in trade and banking. "I would say that Hungary, in terms of trade, is probably more integrated into the euro-zone than some countries which are already members of the zone," Simor said. "Therefore, any unfavorable economic development in the euro-zone has an immediate impact on Hungary."

To solve the debt crisis soon, he pointed out that the most important thing is that countries, which suffer most from the crisis, implement fiscal adjustment and structural reforms. But the strongest euro-zone economies could "maybe generate a little bit more domestic demand" in their economies, Simor added in apparent hope for an increase in their imports. He said that creating a banking union would also be a "very important step forward," and added that it should be constructed in a way that provides a "realistic opportunity" for non-euro-zone members to join.

The IMF expects Hungarian gross domestic product to shrink 1.0% in 2012 and expand 0.8% in 2013, down from the April forecasts of stagnation this year and a 1.8% expansion in 2013, according to its World Economic Outlook released this October. The NBH President said the Hungarian economy was partly weighed down by the recession in the euro-zone. "Next year, we hope the euro-zone is going to be stabilized and will start growing slowly, which will help our exports."


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