* IMF aid talks frozen over central bank dispute
* Budapest has made concessions; EU says not enough
* Orban due to meet Commission's Barroso on Tuesday
By Robin Emmott
BRUSSELS, April 23 Hungary appears no closer to
convincing European officials it can restart talks over
financial aid ahead of Prime Minister Viktor Orban's visit to
Brussels this week and behind the scenes that may suit the
The European Commission, already at odds with Orban over his
aggressive, centralising style, halted talks on an International
Monetary Fund loan last December, citing legislation it said
undermined the independence of Hungary's central bank.
That is just one of the issues still outstanding in a row
over policy that forced Orban to refute charges he was dragging
Hungary towards authoritarianism when he met Commission
President Jose Manuel Barroso in January.
Orban and his ministers have been saying for months they are
doing all they can to get aid talks going, but the gestures they
have made on actual legislation have come up short and analysts
believe the prime minister may simply be playing for time.
That would rely on Budapest's financial reserves allowing it
to hold out until some of the pressure on global markets from
the euro zone's debt crisis eases, making investors more willing
to invest in riskier assets like Hungarian bonds.
But with much of Hungary's public and private debt in
foreign currencies, the risk is that those investors who are
still funding it will lose faith and drive a sell-off of the
forint, which could drive it into a funding crisis.
Brussels, for its part, is offering no sign it is willing to
give much ground.
"Hungary will likely need to take further steps before this
can be resolved," said an EU official with direct knowledge of
the negotiations, referring to the central bank law.
Orban, who meets European political allies in Brussels on
Monday before talks with Barroso on Tuesday, has said that
setting preconditions for aid talks would be "blackmail".
A meeting of Hungary's government, the Commission, the IMF,
the ECB and the Hungarian central bank last week in Frankfurt
made little progress and an EU diplomat said it was difficult to
predict the outcome of Barroso's talks with Orban.
"There's no trust at the political level, with both sides
accusing each other of being unreasonable," the diplomat said.
Hungary's foreign minister was more hopeful.
Janos Martonyi told local news channel HirTV on Sunday that
he expected the EU to give the green light to credit talks by
the end of April after Orban meets with Barroso this week.
"We expect ... as this is what we are hearing from the
Commission, that the decision about this, that the start of the
talks with the European Commission and the International
Monetary Fund, will be made by the end of April," he said.
With the IMF programme contingent on the EU's backing, the
government submitted changes to the central bank law to
parliament last week but did not address all the concerns of the
Commission and the European Central Bank (ECB).
At the heart of the dispute are moves to reduce the salary
of the bank's governor and senior officials, breaking EU law
that prohibits pay cuts during a governor's tenure.
The Budapest government says the cuts are part of a broader
reform that applies to the entire civil service.
Analysts say that all seems like a phoney war, which either
hides Orban's intent to avoid submitting to the conditions that
would come with another IMF programme or simply to win one
without conceding too much more ground.
Orban, who helped lead Hungary's fight against Communism and
was premier between 1998 and 2002, won a landslide victory in
2010 with his Fidesz party. The party used its strong mandate to
rewrite more than 300 laws and the country's constitution, in
changes critics say weaken democratic checks and balances.
Credit rating agencies have cut Hungary's sovereign bonds to
"junk" status in response to some of those moves and the forint
has only been propped up by hopes of an IMF deal, with
investment banks including Credit Suisse still expecting Hungary
to agree a precautionary loan this year.
That faith has been undermined by the dragging out of the
row with Brussels, however, and Orban's leeway for bargaining
ahead of the loan talks would narrow if investors turned against
Budapest as a result.
"It depends on how patient markets are," said Gergely
Hudecz, an economist at Credit Suisse in Paris. "As long as
markets give the benefit of the doubt that an IMF deal will
happen, the government will take its time to negotiate."