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2022/09/19 / Erste Group Research

Hungary Special | Next phase of EU-Hungary dispute

Hungary faces risk of losing EU funds worth as much as 9% of GDP (5% of GDP in 2021-27 EU funds and another 3.8% of GDP in RRF). If the issues over the rule of law and public procurement are not settled, the EC will unlikely approve the RRF funds. That would also close Hungary the way to apply for loans within RRF and much cheaper financing compared to local conditions. Depriving Hungary of EU funds would result in increase of risk premium for Hungarian assets. Further depreciation of currency would become likely scenario. On the other hand, if Hungary turns the remedial measures into appropriate legislation, the EU funds would be granted, it would be positive for the HUngarian forint

CEE countries can expect a flow of EU funds over the next decade in the amount of 6% of GDP in Slovenia, 9% of GDP in Czechia, 13% of GDP in other countries and as much as 16% of GDP in Croatia, with recovery funds coming at the top of the regular payments. In face of the recent crisis marked by surging price levels and aggressive monetary tightening, the EU funds become additionally attractive, considering the rising financing costs. Not to mention the risks related to the financing of widening current account deficits.

The disciplinary procedure that may deprive Hungary of EU funds has been weighing on the forint since spring. The process that led to Sunday’s decision was formally launched on April 27. We see it as one of the main factors behind such an extensive year-to-date depreciation of the Hungarian currency compared to its peers, namely the Czech koruna and Polish zloty. The Hungarian forint has been steadily weaking over the time that Fidesz has been in power, since 2010. It has lost almost 50% over the last 12 years, compared to almost 16% depreciation of the zloty. On the contrary, the Czech koruna has strengthened during that period.

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General information

AuthorErste Group Research
Product nameCEE Economies Special Report
Topic in focusFX, Macro/ Fixed income
Economy in focusHungary
Currency in focusHungarian Forint
Sector in focus-


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