* Orban says Hungary "very close" to ending dispute with EU
* Barroso, diplomats cautious on breakthrough for IMF talks
* Commission says won't refer dispute to court; markets jump
By Robin Emmott and Francesco Guarascio
BRUSSELS, April 24 The European Union will not
take Hungary to court to resolve a row over a central bank law
that has frozen aid talks with the International Monetary Fund,
fuelling optimism that Budapest may be nearer a deal to
stabilise the country's economy.
Signs of progress came as Prime Minister Viktor Orban said
on a visit to Brussels on Tuesday that obstacles to Hungary's
financial aid have been "practically removed", even if the
European Commission's top official insisted after a meeting
between the two men that more discussion was needed.
Hungary's forint firmed over one percent after
Orban's comments and on a document seen by Reuters in which the
Commission said it would not refer the legal dispute to the
European Court of Justice.
The EU's executive, at odds with Orban over his overhaul of
the Hungarian constitution and hundreds of laws, halted talks on
an IMF loan last December, citing legislation the Commission
believes undermines the independence of Hungary's central bank.
"We got very close to being able to achieve a breakthrough
(on outstanding issues). This is a question of days, maximum
weeks," Orban told reporters after meeting European Commission
President Jose Manuel Barroso in Brussels.
"This also means that the obstacles to starting negotiations
with the IMF have been practically removed," he said.
However, diplomats cautioned that Budapest had yet to
completely win over the Commission in the dispute.
Barroso is due to brief EU commissioners on Wednesday, where
they could decide to endorse Budapest's policies or push for
more changes to the central bank law.
But the EU's top economic official Olli Rehn has decided not
to refer the dispute to the European Court of Justice because
Budapest is cooperating, according to the document seen by
"Provided Hungary follows through on the measures it has
communicated, the Commission is prepared to close this case once
the legislation is adopted," said the document, which is due to
be made public on Wednesday.
Barroso's office sounded a cautiously positive note after
his meeting with Orban, but gave few details.
"President Barroso welcomed the commitments made by Prime
Minister Orban on the prompt and full implementation of the
measures regarding the independence of the central bank,"
Barroso's spokeswoman said in a statement.
DON'T CUT MY SALARY
Changes to the bank law could pave the way for IMF talks to
resume, as Rehn said in January the issue of the bank's
independence needed to be solved before negotiations on a
stand-by loan could restart.
Hungary's central bank kept rates at 7 percent for the
fourth consecutive month on Tuesday, in an effort to prop up
Hungary's forint and debt markets.
Budapest hopes an IMF loan, which it hopes it will not need
to draw on, will bring down borrowing costs that have reached
near unaffordable levels as investors question the wisdom of
Orban's unorthodox economic policies.
At the heart of the dispute are Hungarian moves to cut the
pay of the bank's governor and senior officials, breaking EU law
that prohibits such reductions during a governor's tenure.
Orban, who has accused the IMF and the Commission of
delaying loan talks with "preconditions", argues the cuts are
part of a public sector-wide salary reform and not directed at
the central bank.
Orban's office said in a statement the government would push
through proposed changes to the bank law swiftly and consult
further with the European Central Bank, but the salary question
"Orban said in the meeting he could not lift the salary cap,
so it is up to President Barroso to decide whether he agrees
with the prime minister," said one EU diplomat briefed on the
meeting between the two men.
Peter Attard Montalto, an analyst at Nomura, said Orban may
be too optimistic on winning over the IMF and the Commission.
"The very fact Orban says he will not compromise on the
National Bank oath or wage issues also points to fact that talks
are not about to start, in my mind," Montalto said, referring to
an oath of office for Hungary's central bankers.