ECB raps Hungary for neglecting central bank independence

FRANKFURT (Reuters) - The European Central Bank has warned Hungary against tampering with central bank independence and pushed it to take the ECB’s opinions more seriously.

A structure showing the Euro currency sign is seen in front of the European Central Bank (ECB) headquarters in Frankfurt July 11, 2012. REUTERS/Alex Domanski

The ECB has been at loggerheads for some time with the Hungarian government, which has stacked the central bank - the MNB - with its supporters. The ECB shows no sign of backing off.

“During the current consultation procedure, the new Law on the MNB was adopted without taking into account all the ECB’s observations as regards the MNB’s independence,” the ECB said in a legal opinion dated October 7 and published on Wednesday.

“Therefore concerns remain regarding compliance with the principle of central bank independence.”

The Hungarian central bank’s rate-setting panel, the Monetary Council, is already made up entirely of members picked by Prime Minister Viktor Orban or his ruling Fidesz party.

The ECB also warned that giving the Hungarian central bank new supervisory duties without additional funding could cripple its ability to carry out tasks independently.

“The MNB will therefore be obliged to finance its supervisory activities from existing resources. This raises serious concerns as regards the MNB’s financial independence,” the ECB said.

The ECB also complained that it was given far too little time to respond to the draft law and that it was sent a different version from that given to Hungary’s parliament.

“With respect to the consultation on the draft law and the draft decree, the Hungarian authorities have not complied with their duty to consult the ECB,” the legal opinion said.

The new appointments have been made since last December, when ECB President Mario Draghi told a conference in Budapest that the central bank must remain independent to be credible.

Deputy governor Julia Kiraly resigned in April, saying that by firing seasoned staff and changing procedures the central bank was risking long-term damage to the Hungarian economy, which is already the most indebted in central Europe.

(For a copy of the legal opinion, click on: here)

Reporting by Sakari Suoninen; Editing by Ruth Pitchford