The ECB Said the Modifications Might "Influence the Decision-Making Process for the Detriment of Central Bank Independence
January 11th, 2012The Eu and International Monetary Fund have cut short preparatory talks on financial dispute for Hungary after the government of Viktor Orban refused to obstruct a draft law they warned could curb the central bank’s independence.
Officials who had been in Budapest for informal talks left the nation on Thursday night, ahead of their scheduled Friday departure, sending Hungary’s forint sharply lower after news linked out on Friday.
In an argument, the IMF said hello and EU negotiators had “raised concerns about possible limitations” to Hungary’s central bank independence, echoing criticisms voiced with the European Central Bank on Thursday.
“Independence of central banks is among the cornerstones of sound economic management, and also the Maastricht Treaty,” the IMF said. “Given that the government failed to indicate a willingness to delay passage of the law to allow for further discussions, it was decided to interrupt the joint [EU]-IMF preparatory mission.”
A senior EU official added that this draft law, published soon, is at conflict with EU norms.
“It’s difficult for individuals to carry on negotiations as they definitely openly violate European law,” said the official.
Hungary a few weeks ago became the first central or east European country to change on the IMF for new financial support considering that the oncoming of the newest financial meltdown, in a sharp U-turn after rejecting further IMF financing recently using a 2008 bail-out.
While suspension with the preparatory talks was known as unlikely to derail an eventual agreement, it’s a blow to investors who was simply encouraged earlier this week by signs of flexibility by Hungary more than a new IMF deal.
Hungary’s draft central bank law would customize the composition of the bank’s decision-making bodies and present more power to the us government to appoint members. Andras Simor, the existing central bank governor who’s repeatedly clashed with all the centre-right Fidesz government, has stated it could total a “total takeover” from the bank.
The ECB said the modifications might “influence the decision-making process for the detriment of central bank independence”.

