[ad_1]
Key analysis and exclusive content under the tree. You can even give someone a last-minute gift with a one-year subscription to Portfolio Signature. And if you buy an annual subscription for multiple friends, friends and family at the same time, you can also get a quantity discount. So in addition to being a useful holiday gift, it can even support the production of quality inexpensive content. Know more
Hungarian and Polish veto threats are still alive
For more than two weeks, the governments of Hungary and Poland have been vetoing the new seven-year EU budget and the Recovery Fund (NextGenerationEU). At the moment, we can only talk about a conditional veto until next week’s EU summit, then the Heads of State and Government would have to vote on the budget so that it can start in January.
At the moment, there is no compromise between the parties. On one side of the debate is the Hungarian-Polish duo, who do not want the disbursement of funds to be subject to the rule of law, and on the other side are mainly the Western European Member States and the European Parliament, who do not want to leave behind the harsh conditions.
We have already covered an article in the past that the market does not feel a real threat to the Hungarian and Polish vetoes yet, the threat is barely reflected in prices so far. That is, market participants are confident in the positive outcome, they think that there is only a temporary political dispute, hardening between the parties, but sooner or later one or both parties will drop it, since everyone is interested in reaching an agreement. The southern Member States would need the recovery fund resources as soon as possible, and we would lose resources permanently with the permanent slippage of the new framework budget, and if there is a quick agreement, we run the risk of not receiving substantial money indefinitely due to the state of law. it would overwhelm you.
At the moment, the credit rating agencies are also waiting
At the moment, market optimism can also be seen from the credit rating agencies, with the Portfolio asking the top three players, Moody’s, Fitch and Standard & Poor’s, what they think about the possible outcome of the budget debate and how they assess the possible Hungarian veto. in terms of our ranking.
It is difficult to predict anything in the current situation, but we believe there is a lot at stake in the debate for the EU as a whole and for Hungary and Poland, so
we hope, by default, that there will be an agreement on common economic interests
– The S&P experts pointed out our question. According to them, in the end, the governments of Hungary and Poland will have to accept some kind of conditions, but the timing of the agreement is unpredictable.
In their latest analysis, S&P economists highlighted weaker-than-expected growth and mounting fiscal pressures as the main risk factors for Hungary.
The possible failure of the EU budget negotiations would not automatically pose a negative risk for Hungary’s ranking, but could jeopardize the recovery of the Hungarian economy in 2021-22 under our current scenario, and the euro area could have a weaker performance, which could put further pressure on the Hungarian economy.
highlighted in its response to credit rating experts.
According to S&P, in addition to the mobilization of EU funds, the development of the coronavirus epidemic in Hungary and Europe will be of vital importance in the near future. Achieving mass vaccination and immunity will be key to economic forecasts, with mass vaccination expected to begin in mid-2021.
Currently, Fitch also expects the Hungarian and Polish governments to agree on the rule of law, arguing that both countries are important beneficiaries of EU membership and could override national sovereignty arguments over national sovereignty. Arvind Ramakrishnan, Fitch analyst for Hungary and Poland, sees that the development of the debate so far has not worsened the basis for classifying the two countries in his model, and said
There is little chance that the budget debate will cause a significant deterioration in foreign investor sentiment towards Hungary or have an impact on economic growth.
In addition to the relatively optimistic view, the Fitch expert expects that Hungary and Poland’s relations with the EU may remain cold for years to come. They point out that we will have the next parliamentary elections in 2022 and the Poles in 2023, so no serious political pressure is expected from within in the near future to improve these relations with Brussels.
In addition to the current Baa3 rating and the positive outlook for Hungary, we have long emphasized that a militant relationship with the EU could pose a risk, even in terms of credit ratings, but we still don’t see any indication that the current debate has weakened the business or investment environment. My portfolio includes Steffen Dyck, Vice President of Moody’s, who also looks after Hungary at the company.
Our baseline scenario remains that from 2021, significant inflows of working capital and EU funds will support the recovery of the Hungarian economy, Dyck responded. He stressed that Hungary could receive between 50 and 55 billion euros from the EU budget in 2021-27, which is 3.8 to 4.2% of estimated GDP. We get 4% of annual GDP from the current budget, but before the crisis, Moody’s predicted that it could fall 0.5 percentage points from 2021, making the new budget more favorable to us than expected overall.
According to Steffen Dyck, the fact that the Hungarian government’s commitment to disciplined fiscal policy declines after the epidemic may be a negative risk for our ranking. An additional risk would be that government measures that worsen growth prospects and the debt ratio return to a sustained upward path.
Cover image: Getty Images
[ad_2]
