MNI INTERVIEW: Next NBH Head To Improve Relations With Gov't

Gyorgy Matolcsy’s successor as governor of the National Bank of Hungary will bring fresh thinking and a more harmonious relationship with government while retaining its independence, National Economy Minister Marton Nagy told MNI.

New governors “always bring fresh thinking and change,” Nagy said in an interview, something that was “particularly appropriate when the central bank has been shaped by recent crises to such an extent that it cannot escape from its own legacy, its own shadow.”

Matolcsy, appointed in 2013, is due to step down next March, with Finance Minister Mihaly Varga tipped to take over. Matolcsy has been embroiled in a series of public spats with Nagy, a former deputy governor, amid allegations of political interference in monetary policy.

The NBH is “always independent” and central bank independence will be “maintained and respected,” Nagy said, adding that it was “important that critics of the government exercise caution when saying that we want to send messages to the central bank.”

Governments do send messages, he continued “but this is usually executed in the framework of a productive professional dialogue that shall be natural between entities of economy policy. This dialogue does not mean that independent monetary policy is being threatened [...] If there is a message then it is professional, not political.”

NBH TOO CAUTIOUS

Nagy said the NBH, which warned last month that inflation is expected to fluctuate close to the upper bound of the tolerance band in coming months, has been too slow to join major central banks in easing.

“Interest rates are still very high, and we do not have a problem with inflation any more. Of course if a central bank has been burned once, either with inflation or the currency, they do not want to make the same mistake again, so they are trapped by their own over-cautiousness. Fair enough: credibility is important. But they have waited too long.” (See MNI EM POLICY: Inflation Rise, Fed, ECB, Add To NBH Caution)

Prime Minister Viktor Orban announced earlier this month that he will create a new ministry to oversee both the economy and state finances to coincide with changes at the central bank.

Nagy said he would not rule out returning to the central bank at some point, but has no plans to leave the Cabinet.

“Of course it is up to the Prime Minister to decide whether my responsibilities are greater or smaller. There will be a new ministry which will consolidate the roles of the Ministry of Finance and the Ministry for National Economy, and it will be the task of this ministry to balance these questions of economic stimulus and fiscal prudence.”

Turning to Europe, Nagy - who in July chaired an informal meeting of European economy ministers - said the Draghi Report on improving EU competitiveness contains “many” valuable recommendation on capital union, infrastructure, the EV market, and defence, “and there are a lot of points where we can agree.”

But it remains to be seen where the money to fund such projects will come from, he said, adding that any attempt to move towards common tax revenues, a common fiscal instrument, and closer integration via new common debt instruments would be “completely unacceptable.”

DRAGHI WRONG

“Draghi is wrong in thinking that the answer is to create more debt at a time when the EU wants to increase competitiveness while cutting deficits of no more than 3%,” he said. “By contrast, the U.S. is running deficits of 7% and China can afford to subsidise everybody. Any common debt instruments will by their nature be guaranteed by each and every member state.”

Member states must spend at least 2% of their GDP on defence before calling for funds to boost the bloc’s collective military readiness, he said.

Asked whether Budapest - which has a track record of blocking EU sanctions against Russia - would consider supporting a 15th round, or even suspend its twice-yearly veto power, Nagy was unequivocal:

“Hungary takes the very clear view that the sanctions are not working and in addition harm you and your economy. Just look at the energy question. To be clear, the war is a terrible thing and should be stopped, but we always say that diplomatic steps are needed in order to sit down and then negotiate peace, because currently it’s going nowhere,” he said.