* To discuss 2011 budget only with EU- PM Orban
* Hungary govt will not back down on bank tax
* Ruling Fidesz wants to win Oct. 3 municipal vote as well
By Krisztina Than and Dave Graham
BUDAPEST/BERLIN, July 21 Hungarian Prime
Minister Viktor Orban said on Wednesday his government would
discuss the 2011 budget only with the EU and long-term
negotiations with the IMF, Budapest's other international
lender, were pointless.
Orban noted that Hungary's deal with the International
Monetary Fund, part of a rescue to avoid a financial meltdown in
2008, expires in October -- when his centre-right Fidesz party
also has to fight municipal elections.
But Orban, speaking on a visit to Berlin, did not say
whether his government still wanted to seek a new precautionary
deal with its international lenders for 2011 and 2012, following
the suspension of talks with the EU and IMF last weekend due to
an impasse over budget cuts.
Most analysts have said Hungary, which runs central Europe's
highest public debt at 80 percent of GDP, needs a safety cushion
from the IMF and European Union in case sentiment on world
financial markets turns negative.
But they say Orban has taken a tough line with the IMF over
demands for cuts partly to avoid voters deserting his Fidesz
party in the local elections on Oct. 3.
"We need to reach agreement not with the IMF, but with the
EU, on how we reduce our deficit from 3.8 percent to a level
below three percent as expected by the European Union," Orban
told a news conference with German Chancellor Angela Merkel.
"We need to negotiate that with the European Union. We will
do that," he said through an interpreter. "Our budget for next
year we will do with the European Union in accordance with these
For a Q+A on Fidesz's political motives [ID:nLDE66I1V2]
For a menu of stories on Hungary, markets[ID:nLDE66I054]
Fidesz has stuck resolutely to its promises of cutting taxes
and creating jobs to spur economic growth, rather than imposing
the deep cuts demanded by lenders and adopted by the Socialists
who were punished when Fidesz swept to power in April
The leader of Hungary's far right Jobbik party also said on
Wednesday that "there is life without the IMF", putting pressure
on Orban's government to take a tough line with the
international lenders. [ID:nLDE66K18Y]
But once the October elections are over Fidesz should have a
freer hand, with the next national vote not due until 2014,
Economy Minister Gyorgy Matolcsy told Reuters a week before
the talks with the IMF and EU fell through that Hungary would
seek a safety net for the next two years, even though it is
currently able to finance itself from markets.[ID:nLDE6610H3]
"What Orban is saying in Berlin is perplexing," said Peter
Attard Montalto at Nomura in London.
"Firstly he says (there is) no point in discussing long run
policy as (the) deal was coming to an end -- this is totally
(the) opposite of what he has said in past about looking for an
extension of the IMF/EU lending agreement. Also (it) shows they
clearly think they don't need any more money," he said.
The forint fell sharply after the lenders suspended a review
of the 20 billion euro funding agreement signed in October 2008
after they failed to get sufficient clarity of the government's
future economic policies. [ID:nLDE66I054]
The currency EURHUF=D2 has regained ground since then but
uncertainty is keeping markets shaky.
Hungary needs to bring its budget deficit below 3 percent of
GDP next year under an EU Excessive Deficit Procedure (EDP). But
the government said would it press on with plans to tax banks
this year and next, despite IMF and EU calls for structural
spending cuts, as it woos voters before the October elections.
Orban's government has shown surprisingly little sensitivity
to financial markets since winning its landslide victory in
April, and analysts said it was unlikely to back down with the
international lenders to avoid losing face -- and votes.
RESPECTING THE RULES
Merkel noted that although Hungary was not a member of the
euro zone, as an EU member it also needed to respect the bloc's
budgetary rules limiting deficits to 3 percent of GDP.
Fidesz vice chairman Lajos Kosa fired another warning shot
on Wednesday, saying the IMF should be realistic when
considering a 2011 deficit goal of 2.8 percent of GDP.
"It is obvious that Hungary's situation is one of the most
difficult of all member states in European Union. In such a
situation, expecting us to run the lowest deficit ... they can
say that, but this will not work," he told public m1 television.
"The IMF must be mindful to remain grounded in realities."
Analysts do not see any government change of heart soon.
"Orban sticks to an issue if he believes he can win ... and
I think with the bank tax, he will not back down," said Csaba
Toth, political analyst at think tank Republikon.
Fidesz wants to pass the bank tax in parliament on Thursday
to raise 200 billion forints ($900 million) from the financial
sector both this year and next, even though lenders said deficit
cuts should be based on durable structural measures, especially
in 2011, to make the budget sustainable in the long run.
(Reporting by Krisztina Than and Gergely Szakacs; Editing by