* EU Commission announces legal action against Hungary
* Central bank law, judicial and data protection reform in
* Compromise needed for IMF/EU to budge on financial support
By Claire Davenport and Krisztina Than
STRASBOURG/BUDAPEST, Jan 17 The European
Union raised the stakes in a showdown with Hungary on Tuesday,
with the European Commission saying it would take legal action
against the Hungarian government for failing to make
authoritarian new laws comply with EU legislation.
Prime Minister Viktor Orban's conservative Fidesz party has
been condemned 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 the laws governing
the central bank, the retirement age of judges and the country's
data protection authority violated EU rules and needed to be
changed within one month if Hungary wanted to avoid being taken
to the European Court of Justice, the EU's highest court.
Failure to comply with the EU means that Hungary is also
stalled in its efforts to negotiate financial assistance from
international lenders as it tackles the threat of insolvency.
Talks with the International Monetary Fund on aid collapsed
last year in a row with lenders over the new legislation. The
IMF said Hungary must first get the EU's blessing before talks
on a new financial package can start.
"The Commission is determined to take any legal steps
necessary to ensure that the compatibility with European Union
legislation is maintained," European Commission President Jose
Manuel Barroso said in a statement.
"We hoped the Hungarian authorities would make the changes
necessary to respect European law. This has not happened so far,
so we have decided to launch the infringement proceedings."
Hungary said it wanted to address the Commission's concerns
fully, without going through the entire legal process.
"Our goal is to give complete and substantial answers to the
concerns raised, and that we find a solution to the problematic
questions as soon as possible, preferably without going through
the entire infringement procedure," the government spokesman's
office said in a statement.
EU officials, who are also struggling to contain a debt
crisis in the euro zone, have led criticism of Orban's policies.
Legal proceedings against a member country's laws are rare and
reflect growing fears about Hungary in European capitals.
The key problems are with a batch of new laws that came into
force at the start of the year. The EU's fundamental treaty
requires independence of central banks, but Hungary's new law
allows a government minister to participate in key meetings, the
On the judiciary, the EU said that Hungary's decision to
lower the retirement age for judges and certain types of lawyer
to 62 from 70 went against EU laws prohibiting workplace
discrimination based on age.
Thirdly, a restructuring of Hungary's data protection
authority infringed an EU rule requiring the independence of
data protection supervisors.
Hungary's government has said it may rework its policies and
its ambassador to the EU, Peter Gyorkos, played down the
"Even the most impartial and most correct partners can get
into dispute," he told Reuters TV. "But please let's not exclude
that in certain cases we will say 'Sorry European Commission, we
LAST DITCH EFFORT
Hungarian diplomats in Brussels made last-ditch efforts to
explain their government's position.
The start of the infringement proceeding would mean that
Hungary must modify the disputed laws or face a potential
lengthy legal battle that could end up in the European Court of
Justice. This may hold up talks on financial assistance.
With its economy headed into stagnation and investor
confidence ruined by ad hoc measures that included Europe's
highest financial sector tax, and hefty debt payments due this
year, Hungary needs a new funding deal to prevent a market
"The most negative reaction would be if the government
starts disputing the procedure which in turn could seriously
delay the start of the official talks regarding external
financial assistance," Unicredit, an Italian bank, said in a
note on Tuesday.
Hungary sold more debt than planned at an auction last week,
but at yields above 9 percent, widely seen as unsustainable,
while the forint is stuck on the weak side of 300 per euro after
record lows hit this month on a string of ratings downgrades to
"junk" debt status.
With parts of a $13 billion private pension transfer, which
produced a one-off 2011 fiscal surplus, and some cash reserves
still in government coffers, Hungary is under no immediate
pressure to clinch a deal.
But given high borrowing costs muddling through without a
backstop is not an option, analysts say.
"Failure to reach an agreement would mean very serious
trouble for Hungary," said analyst Zoltan Torok at Raiffeisen.
"In the short run, the government could probably continue to
repay debt, but this is the short term, half a year, or a year,
give or take. It can't afford to go it alone for the long haul."
Orban's point man with the IMF, Tamas Fellegi, returned from
Washington to Europe empty-handed last week and was told
"tangible steps" on policies to stabilise the economy were
needed before talks could even start about a financing