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Are we on the right track? Hungary's Euro strategy

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Mihalyi P.

Kozgazdasagi Szemle (Economic Review)

2005

vol. 52

issue 7/8

712-731

Hungary seeks to demonstrate its credibility and fulfil the Maastricht criteria with gradual fiscal consolidation, a flexible system of exchange rates, and adherence to inflation targets. This is ill-advised, as it conceals the fluctuations in all four indicators. Credibility was lost around 2001 and situation with the four nominal convergence criteria is worse than it was in 2005. The strategy followed for four years is not suited to restoring credibility or ultimately to meeting the nominal convergence criteria either. The conflict between the government and central bank is an effect, rather than a cause of the course followed for four years becoming impossible. Credibility can only be regained now by turning to a currency-board system. Freedom of economy policy has been reduced to deciding when to schedule this. The study does not attempt to examine systematically the political, legal and institutional conditions for introducing a currency board. The alternative of speeding up spontaneous introduction of the Euro is a less favourable course.

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1 Kozgazdasagi Szemle (Economic Review)

1 2005

1 Mihalyi P.

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Are we on the right track? Hungary's Euro strategy