From 2010 onwards, Hungary has been one of the states that has been able to mitigate the domestic effects of the global downturn by pursuing a disciplined fiscal policy. In other words, Hungary’s domestic economic policy responded to the changed world economic environment with reforms.
It is worth highlighting a few measures that have helped reform the tax system and increase employment. At the same time, the government has taken steps to focus on competitiveness, while both the debt ratio and the budget deficit have been on a declining path.
Overall, the Union “has not done its homework”, kicking down the road the burdens of the previous crisis. The bureaucratic institutional system makes it difficult to react, so the modification and fine-tuning of fiscal rules will presumably be a lengthy process.
Preliminary expectations indicate that the French presidency in 2022 is preparing to move fiscal rules in a looser direction. The ECB’s quantitative easing program must be pursued while keeping the yield environment low so that the debt of peripheral countries does not become unsustainable.
It is not surprising, then, that the countries that have seen the need for rapid and large-scale intervention – which is closer to U.S. crisis management – have taken action themselves. The funds used were provided by a loan or, for example, in the case of Hungary, from the central budget.
And so Hungary had to choose its own path within the Union – again. Therefore, the determination of the budget deficit and the debt ratio should not be based on fiscal rules that may soon become more permissive in the EU. It is necessary to find the bottleneck where the need for support to restart the economy and the willingness of the debt stock to finance the market meet. Simply put, this means aiming for a long-term sustainable debt ratio.
Title image: Hungarian Finance Minister Mihály Varga. (MTI/Szilárd Koszticsák)
