Hungary will eventually have to adopt the single European currency, but moving too soon would cost the nation’s economy, the governor of the National Bank of Hungary said. György Matolcsy stressed that the country will be ready for euro adoption by 2030.
The National Bank of Hungary has a clear and firm position: Hungary must join the euro zone sooner or later, but this can hardly be achieved before 2030, György Matolcsy, the bank’s governor said in an interview on Kossuth Radio. The central bank governor also said on that he believes that Europe will be successful in the next decade and Hungary should not be left out of this European success story.
Not too soon
Matolcsy noted in the interview that the euro was initially a huge promise for Europeans and a significant risk for American as they feared the euro may take the place of the dollar as the top currency in the world. According to governor, the Americans engaged in hidden financial warfare against the euro in the initial stages, the consequence of which was that the euro area experienced a number of crises. Despite many crises, the euro has found its place in the world, becoming the second currency in the world. This situation is now suitable for the American Fed as well, Matolcsy said.
So far, 20 countries have adopted the euro, and at some point Hungary should follow suit, added the chairman. “Our position is that when we reach almost 90% of the average level of development of the European Union, we will be ready for the euro.” In Matolcsy’s view, Hungary should get there by 2030.
“To introduce it before then would be irresponsible, because we have seen, for example, that Slovakia entered the euro area somewhat unprepared but with great determination, and their economy has fallen back enormously,” Matolcsy explained. He added that Greece also entered the euro zone unprepared and they too have lost out.
Until joining the single currency and the common monetary policy system, Hungary should make good use of the central bank’s independent room for maneuver, Matolcsy said. He praised the central bank’s actions during the very risky and dangerous period of the Covid crisis, when “we have made more than 11,000 billion forints available to the Hungarian economy, and this has meant an extra 10% in economic growth. … We could not have done this as a eurozone member. The Hungarian National Bank was able to do this because it had targeted programs, such as the bond program,” he added.
“So, until we reach the final stage of catching up, we need the instruments and resources of an independent, highly flexible national central bank,” he explained.
Meeting the Maastricht criteria
The president of the Fiscal Council Árpád Kovács said earlier this month that Hungary can meet the Maastricht criteria for adopting the euro by the end of 2024. In order to adopt the euro, EU countries have to meet specific conditions designed to ensure economic convergence, called Maastricht criteria. The average inflation rate observed during a one-year period before a country is examined for admission to the single currency must not be more than 1.5% higher than the average of the three best performing member states. The government deficit must not exceed 3% of GDP and public debt must not exceed 60% of GDP, unless the ratio is sufficiently declining to approaching the reference value at a satisfactory pace.
Kovács stressed that inflation, which was well above 20% in February, may fall to around 3% by the summer of 2024. Meanwhile, public debt could fall well below 70% of GDP by the end of next year, and the general government deficit could be around 2.9%.
Even though Hungary is currently in the bottom third of the EU ranking in terms of GDP per capita, the country could advance to the middle by 2029, Kovács said.
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