Hungary

X - Financial Support

A number of member states have received direct financial assistance through balance of payments support (Hungary, Rumania, Latvia), bilateral agreements/IMF (Greece), the temporary emergency funds/IMF (Ireland, Portugal, Greece), and the permanent emergency fund (Spain and Cyprus). 
(
http://ec.europa.eu/economy_finance/assistance_eu_ms/index_en.htm
)
Several member states have (also) indirectly benefited through the Securities Markets Programme (SMP) created in May 2010, a bond-buying programme of the European Central Bank that was replaced in September 2012 by the Outright Monetary Transactions (OMT) programme (Greece, Ireland, Portugal, Italy, Spain).   

(
http://www.ecb.int/mopo/liq/html/index.en.html#portfolios)

Context
X.1
If relevant, describe the political, economic and legal situation leading up to the moment of the formal request of direct financial assistance.

Political crisis started in Hungary in 2006 when Prime Minister FerencGyurcsány’s speech about his party (social democrat MSZP) and Government lying to the public was leaked.[1]He did not resign, however serious protest and street riots were held against him all over the country, especially in the capital city, Budapest.

The Government lost the support of the pubic immediately, and during the next three years the Prime Minister became marginalized in his own party, becoming unable to finish the four years term. A new prime minister, Gordon Bajnai was elected by the majority of the Parliament who formed a ‘technocrat Government’ in April 2009.

‘In response to the serious market turbulences and difficulties in refinancing government and external debt in the first half of October 2008, the Hungarian authorities applied to the EU, the IMF and the World Bank for financial assistance.

Following negotiations in October 2008 between the IMF and the Commission staff on the one hand and the Hungarian authorities on the other, an agreement was reached to provide multilateral financial assistance to Hungary with an overall amount of €20 billion, consisting of the following contributions: European Community, €6.5billion under a balance-of-payments assistance facility approved by the Council on 4 November 2008;International Monetary Fund, SDR 10.5 billion (around €12.5 billion) under an IMF Stand-by arrangement approved on 6 November 2008;the World Bank, €1.0 billion.’[2]

Negotiation
X.2
Describe the public and political debate during the negotiations on the financial assistance instruments, notably the Memorandum of Understanding (MoU) and Financial Assistance Facility Agreement, in particular in relation to the implications for (budgetary) sovereignty, constitutional law, socio-economic fundamental rights, and the budgetary process.

Then opposition, now Governmental party Fidesz during the parliamentary debate of 6 November 2008 argued, that the people have the right to know what the Government is  going to spend the loan provided by the IMF, the World Bank and the EU on, which will increase the national debt. As an opposition party, Fidesz criticized austerity measures conducted by the Government. According to Fidesz, the Government said that the situation had arisen because of the international crisis, while it can also be argued that between 2002 and 2008 the reigning Governmental party, MSZP ruined the country, the crisis hit this weakened country and therefore it had really serious effects on Hungary.[3]

The Government defended its policies by saying the aim is to make the social system more fair, the regulation of the banks stricter, freeze the wages of the members of the Parliament, and decrease the wages of the heads of state owned companies, be stricter on corruption and black market.[4] According to the Government, the money coming from the European Union made it possible to run anti-crisis politics. These sources were really important in dealing with fiscal crisis and economic recession. In that situation the sources provided by the European Union made the developments possible.[5]

According to a Member of European Parliament, himself being member of the governing party MSZP, and therefore speaking on behalf of the Government during the debate, the deal of the financial aid was really hard to negotiate and it would be able to save Hungary from the financial crisis.[6]

National debate concentrated on the IMF loan, which is the symbol of the catastrophic economic conditions of the country. It was often said during the debate that countries from the third world are the clients of the IMF and Hungary has not been in the need of this kind of loan since the end of the communist era in the beginning of the 1990’s. The main communication path of the then major opposition party Fidesz was that the socialist governments and namely Ferenc Gyurcsány were responsible for this situation.

Status instruments  
X.3
What is the status of the financial assistance instruments in the national legal order (political agreement, international treaty, etc.)?

The financial aid was provided to Hungary by the signing of the Memorandum of Understanding that is an international treaty according to the Hungarian legal system. According to the Hungarian law[7], it is the competence of the Government to ratify any international treaty that does not deliver sovereignty to the international bodies, in this case the European Union. These provisions derive from Article E of the Fundamental Act of Hungary.[8]

Transposition national legal order 
X.4
Considering the status of the financial assistance instruments, what procedure does the constitution prescribe for their adoption/transposition into the national legal order?

The financial assistance was incorporated into the Hungarian legislation by Government decrees. According to Article 7 paragraph 1 b) of Act L of 2005 on the Procedure related to International Treaties it is the competence of the Government to ratify any international treaty that does not deliver sovereignty to the international bodies, and Article 15 paragraphs 3 and 4 of the Fundamental Act of Hungary states that acting within its competence, the Government adopts decrees by statutory authorization on any matter not regulated by an act, but no decree of the Government shall conflict with any act.[9]

The Memorandum of Understanding was translated and released by the Government in the 282/2008 decree of Government, released on 28, November, 2008.[10] Amendments of the Memorandum of Understanding were released in statutes on April 4th, 2009 (67/2009. decree of Government)[11], June 24th, 2009 (135/2009. decree of Government)[12], and February 28th, 2010 (28/2010. decree of Government)[13].

Because of the form of legislation (decree of Government, what is released by the Government without any other confirmative action) there was no Parliamentary debate on this issue.

Role Parliament        
X.5
What is the actual role of Parliament with regard to the adoption/transposition into the national legal order of the financial assistance instruments?

As described in the answer to question X.4, it was the Government who incorporated the assistance instrument into the national legal order. The Parliament was concerned indirectly when accepting the budgetary acts of the years affected by the financial assistance.

Adjustment requirements    
X.6
Describe the relevant content of the financial assistance instruments.

Hungary received a financial assistance that consisted of three parts. The first from the European Community, €5.5billion under a balance-of-payments assistance facility approved by the Council on 4 November 2008; the second from the International Monetary Fund, SDR 10.5 billion (around €12.5 billion) under an IMF Stand-by arrangement approved on 6 November 2008; and the third from the World Bank, €1.0 billion. The assistance offered by the European Union is detailed in the following.

The assistance was received in three phases: €2.0 billion, released in December 2008 upon agreement on the Memorandum of Understanding (MOU);€2.0 billion, released in March 2009; and €1.5 billion, released in July 2009.The interest rate is 3.25% for the first two installments and 3.625% for the third one, with repayments started in 2011.[14]

The first memorandum of understanding focused on six areas: fiscal consolidation, fiscal governance reform, financial sector regulation and supervision, structural reforms, monitoring fiscal developments and reporting on inflation and foreign exchange reserves.[15]

Missions
X.7
What legal changes, if any, had to be made to accommodate ‘troika’ review missions, post-programme surveillance missions, etc?

No legal changes were made to accommodate these ‘troika’ missions and they were not subject to public debate.

Case law international instruments
X.8

Have there been direct or indirect legal challenges against the financial assistance instruments before a national (constitutional) court?

No, there has been none.

Case law implementing measures          
X.9
Is there a (constitutional) court judgment on national policy measures adopted in relation to the Memoranda of Understanding?

No, there is not any.

[1]http://news.bbc.co.uk/2/hi/europe/5359546.stm

[2]http://ec.europa.eu/economy_finance/assistance_eu_ms/hungary/index_en.htm

[3]http://parlament.hu/internet/plsql/ogy_naplo.naplo_fadat?p_ckl=38&p_uln=173&p_felsz=147&p_szoveg=eur%F3pai%20uni%F3&p_felszig=147

[4]http://parlament.hu/internet/plsql/ogy_naplo.naplo_fadat?p_ckl=38&p_uln=173&p_felsz=147&p_szoveg=eur%F3pai%20uni%F3&p_felszig=147

[5]http://parlament.hu/internet/plsql/ogy_naplo.naplo_fadat?p_ckl=38&p_uln=172&p_felsz=58&p_szoveg=eur%F3pai%20uni%F3&p_felszig=58

[6]http://parlament.hu/internet/plsql/ogy_naplo.naplo_fadat?p_ckl=38&p_uln=172&p_felsz=118&p_szoveg=eur%F3pai%20uni%F3&p_felszig=118

 

[7] Act L of 2005 on the Procedure related to International Treaties, Article 7 paragraph 1 b). The text of the act is available here: http://net.jogtar.hu/jr/gen/hjegy_doc.cgi?docid=A0500050.TV

[8]http://www.kormany.hu/download/4/c3/30000/THE%20FUNDAMENTAL%20LAW%20OF%20HUNGARY.pdf

[9] The text of the Fundamental Act of Hungary is available here: http://www.kormany.hu/download/4/c3/30000/THE%20FUNDAMENTAL%20LAW%20OF%20HUNGARY.pdf

[10]http://net.jogtar.hu/jr/gen/hjegy_doc.cgi?docid=A0800282.KOR

[11]http://www.opten.hu/opten/light/torvtar/67-2009-iv-2-korm-rendelet-110820.html

[12]http://www.opten.hu/opten/light/torvtar/135-2009-vi-24-korm-rendelet-121850.html

[13]http://net.jogtar.hu/jr/gen/hjegy_doc.cgi?docid=A1000028.KOR

[14]http://ec.europa.eu/economy_finance/assistance_eu_ms/hungary/index_en.htm

[15]Memorandum of Understanding between the European Community and the Republic of Hungary, Annex I