Hungary gives way in dispute over contested law

BUDAPEST/STRASBOURG, France Wed Jan 18, 2012 3:06pm EST

Hungary's Prime Minister Viktor Orban attends a press briefing after a debate on the infringement proceedings concerning Hungary at the European Parliament in Strasbourg, January 18, 2012.  REUTERS/Vincent Kessler

Hungary's Prime Minister Viktor Orban attends a press briefing after a debate on the infringement proceedings concerning Hungary at the European Parliament in Strasbourg, January 18, 2012.

Credit: Reuters/Vincent Kessler

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BUDAPEST/STRASBOURG, France (Reuters) - Hungary's prime minister yielded on Wednesday in a dispute with the European Union that threatens aid for his country, saying he was willing to change contested laws tightening government control over institutions including the central bank.

Prime Minister Viktor Orban's conservative Fidesz party has been criticized by the international community for introducing measures that threaten the independence of the media, the judiciary and the central bank since sweeping to power in 2010.

The Commission, the EU's executive, said in a letter sent on Tuesday that new laws on the central bank, the retirement age of judges and the country's data protection authority violated EU rules. They needed to be changed within one month if Hungary wanted to avoid a procedure that could end up at the European Court of Justice, the EU's highest court.

On Wednesday, Orban offered amendments and said he could accept some of the criticisms made by the Commission.

"I said that the problems that had been raised by the Commission could easily be resolved," he said in Strasbourg.

"We can accept all remarks concerning the independence of the central bank," he told the European Parliament, but flagged one disputed point.

"The Commission asks that the Governor and the members of the Monetary Council should not take an oath in Parliament and on the Hungarian Constitution," he said. "I believe that apart from this, our views match in all other points."

Failure to comply with the EU means that Hungary is stalled in its efforts to negotiate assistance from international lenders as it tackles a public finance crisis.

But Orban, who has also faced criticism for new controls on the media, has lost support in Hungary after sweeping to power in 2010. Analysts said it could be politically difficult for him to offer the full retreat that international lenders are seeking.

He said on Wednesday he hoped that talks next week with the President of the European Commission, Jose Manuel Barroso would yield quick results.

Barroso reiterated criticism of the legislation, and also urged Orban's government to "clearly demonstrate" its commitment to democracy.

"Beyond the legal aspects, some concerns have been expressed regarding the quality of democracy in Hungary, its political culture, the relations between government and opposition and between the state and the civil society," he said. "I strongly appeal to the Hungarian authorities to respect the very principles of democracy and freedom."

Economy Ministry State Secretary Zoltan Csefalvay told Reuters in Vienna that the government would aim to settle the legal disputes with the EU as soon as possible and hoped the country could reach a deal with its lenders during this quarter.

Yields on Hungarian government bonds dropped around 40 basis points on hopes that Hungary was getting closer to a new funding deal.

Central Bank Governor Andras Simor said on Wednesday he expected Orban to live up to his promises to respect the institution's independence.

Poland's Prime Minister Donald Tusk offered political support for the embattled Hungarian premier.

"We have decided that Poland will offer -- if PM Orban and Hungarians are interested -- some form of political support so that reactions towards the situation in Hungary are not blown out of proportion," Tusk told a press conference.

RESPECT

The disputed laws sent the forint plunging to record lows against the euro in the first week of January, and Hungary's cost of borrowing spiked above 11 percent.

They were also the main reasons for the collapse in aid talks with the EU and the International Monetary Fund last year, as the IMF has said Hungary needs the EU's blessing before it will consider aid.

Though Orban's latest statements mark a shift from his earlier, defiant stance, his reluctance to acquiesce immediately to international demands may have helped him with voters.

Some Hungarians who have lived through several crises and waves of budget austerity since communism collapsed in 1989 feel the EU is overstepping its authority.

"They are threatening the sovereignty of the country (the EU action) and we should protest against this in all forums," said Zoltan Solymosi, 72, a dentist in Budapest.

Analysts say Hungary, whose economy has come to a standstill, needs the outside help to restore investor confidence ruined by the government's unpredictable policies.

Its budget deficit for this year is targeted below the EU's limit of 3 percent of economic output, but Hungary's debt is rated in "junk" category by all three main rating agencies.

Even though the government has some cash reserves which could allow it to roll over debt for a few months, it needs the financing backstop from lenders to retain access to markets.

(Writing by Krisztina Than and John O'Donnell; Editing by Sebastian Moffett)

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