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Commission Opinion [COM(97) 2001 final - Not published in the Official Journal]
Commission report [COM(98) 700 final - Not published in the Official Journal]
Commission report [COM(99) 505 final - Not published in the Official Journal]
Commission report [COM(2000) 705 final - Not published in the Official Journal]
Commission report [COM(2001) 700 final - SEC(2001) 1748 - Not published in the Official Journal]
Commission report [COM(2002) 700 final - SEC(2002) 1404 - Not published in the Official Journal]
Commission report [COM(2003) 675 final - SEC(2003) 1205 - Not published in the Official Journal]
Treaty of Accession to the European Union [Official Journal L 236 of 23.09.2003]


In its July 1997 Opinion, the Commission took the view that it was too early to decide on Hungary's participation in the euro area immediately upon its accession, although if it were to participate in the third stage of economic and monetary union (EMU) while not being a member of the euro area, this should not pose any problem in the medium term. However, the Commission urged Hungary to make its central bank legislation fully compatible with Community requirements and to continue pursuing monetary and exchange-rate policies based on stability. It also called for further efforts regarding the free movement of capital, with special reference to capital outflows.

The 1998 Report noted that Hungary had made little additional progress in its preparations for joining Economic and Monetary Union.

In its 1999 Report, the Commission concluded that Hungary had made little additional progress in its preparation for participation in the Economic and Monetary Union.

The 2000 Report noted that Hungary had made little additional progress in its preparation for participation in the Economic and Monetary Union, although the Hungarian currency had been tied to the euro since January 2000.

It its 2001 Report, the Commission concluded that since the last Regular Report, Hungary had made significant progress in the adoption of EMU-related acquis.

The 2002 Report noted that Hungary had not made any further significant progress in the area of Economic and Monetary Union, given that Hungarian legislation is largely aligned on the EMU-related acquis.

In its November 2003 Report, the Commission concludes that Hungary has met the commitments and requirements arising from the accession negotiations in the area of economic and monetary union.
The Treaty of Accession was signed on 16 April 2003 and accession took place on 1 May 2004.


The third stage of EMU began on 1 January 1999. This date entails far-reaching changes for all Member States, even those not taking part in the euro area from the outset.

In the economic sphere, the keystone is the coordination of national policies (national convergence programmes, general economic guidelines, multilateral surveillance and excessive-deficit procedure). All countries are required to comply with the Stability and Growth Pact, to refrain from direct financing of the government deficit by the central bank, to prohibit privileged access by public authorities to financial institutions and to have liberalised capital movements.

Member States not taking part in the euro area conduct an independent monetary policy and participate in the European System of Central Banks (ESCB) under certain conditions. Central banks must be independent and must have price stability as their primary objective. Lastly, exchange-rate policy is regarded as a matter of common interest by all Member States, who must be in a position to participate in the new exchange-rate mechanism.

Even though accession entails acceptance of the objective of EMU, compliance with the convergence criteria is not a precondition. However, since those criteria are indicative of a macroeconomic policy geared to achieving stability, all Member States must, in due course, comply with them on a permanent basis.


In its 1997 Opinion on Hungary's application for EU membership, the Commission concluded that Hungary could be regarded as a functioning market economy and should be well able to cope with the competitive pressure and market forces within the Union in the medium term. Over 70% of its exports already go to the European Union. Hungary has been steadily catching up with the EU. In 2000 GDP per capita was 52% of the EU average. The 2003 report finds that the overall macroeconomic equilibrium of the Hungarian economy has deteriorated, in particular as regards the composition of GDP, external accounts and exchange and interest-rate stability.

In recent years Hungary has been economically strong. GDP grew by 4.4% in 1997. In 1998 the Hungarian economy grew by 5.1% thanks to domestic demand. It grew by 4.5 in 1999. In 2000, the Hungarian economy grew by 5.2%, the highest rate since the beginning of transition. Despite a deterioration of the international environment, GDP continued to grow by 3.8%, and seemed likely to reach 3% during first half of 2002. Growth had averaged 4.5% since 1997. In its 2003 report the Commission notes that in 2002, in a difficult external environment, GDP grew by 3.3%. During the first half of 2003, the growth rate decreased to 2.6% year-on-year.

Public finances have gradually been geared towards budgetary consolidation. In 1997 the deficit amounted to 4.6% of GDP and it remained under 5% in 1998. The general government deficit in 1999 was 3.7% of GDP. Over the years, Hungary has taken a gradualist approach to fiscal consolidation. In 2000, the debt-to-GDP ratio fell to 55.7%, 4.8 percentage points lower than in 1999. The reduction of the budget deficit slowed in 2000 and 2001. The headline budget deficit in 2000 turned out at 3.7% of GDP. The budgetary situation subsequently worsened and the deficit reached 4.1% of GDP in 2001. The 2003 report finds that in 2002 the fiscal deficit worsened again somewhat, to reach 9.2% of GDP. As a consequence of the rising deficit, public debt rose to 56.3% of GDP in 2002, from 53.4% in 2001. The government set itself an ambitious deficit target of below 5% of GDP for 2003 and of 3.8% for 2004.

The fight against inflation has been one of the most serious problems facing Hungary. Inflation fell sharply to an average of 14.3% in 1998 (from 18% a year earlier) and dropped to single-digit levels in January 1999. Inflation has been a disappointing aspect of macroeconomic performance. Progress towards price stability has been slow. Recognising these developments, the authorities embarked on a more committed anti-inflation policy path in spring 2001. The implementation of a policy targeting inflation has succeeded in putting a stop to excessive inflationary expectations. Thereafter, inflation slowed rapidly, falling to 4.6% in July 2002. Over the whole of 2002 it came down to an annual rate of 5.2% and reached its lowest level since transition in May 2003, at a rate of just 3.6% year-on-year. It was 4.7% year-on-year in August 2003.

The National Bank of Hungary has continued to operate the crawling peg exchange rate regime established in 1995. In 1999, a potential conflict between the exchange rate and inflation objectives emerged. Changes to the exchange rate and monetary policies in 2000 allowed the currency to appreciate significantly, thus lowering imported inflationary pressures. The National Bank formally adopted an inflation-targeting monetary policy. The currency appreciated substantially, with some speculative fluctuations, following the changes to the exchange rate system. The 2002 report noted that the combination of a system of flexible exchange rates and a monetary policy targeting inflation bolstered macroeconomic stability. At the beginning of 2003, the combination of a strong currency and high interest spreads in a low-risk environment triggered a speculative attack at a time when the forint was close to the upper end of its trading band. The central bank cut interest rates. In the aftermath of this turbulence, new inflation targets were agreed between the Central Bank and the government for 2003 and 2004 (3.5% +/-1% for both years). In June 2003, by joint decision by the government and the central bank, the forint's central parity against its euro peg was devalued by 2.26%.

In 1998, the current account deficit reached 4.9% of GDP, which was its 1997 level. The current account balance then proceeded to improve, with the deficit falling to 3.3% of GDP in 2000. The situation continued to improve and the deficit remained under control. There have been no problems financing it. The current account deficit dropped to 2.2% of GDP in 2001. The 2003 report finds that the external balance started to deteriorate in 2002, with a current account deficit of 4% of GDP.

At the time of the publication of the Commission's Opinion, structural reforms were already relatively well advanced. The process of privatisation, in particular, had gone quite far. The depth and breadth of the privatisation process carried out so far has been considerable. At the end of 1998, the private sector accounted for some 80% of GDP and an extensive process of privatisation is nearly completed. The pace of structural reform has since eased, reflecting the advanced state of the reforms.
However, plans for the overhaul of the health sector and the approval of an economic strategy have suffered delays. The reform of the pension system has not been fully implemented and after a promising start, healthcare reform has been delayed. Permanent low unemployment has been one of Hungary's major successes during this transition phase. Unemployment fell gradually from 9.0% in 1997 to 5.7% in 2001. The 2003 report finds that the economic reform path is being pursued in a credible manner, through the privatisation of some remaining state-owned companies, a step-by-step liberalisation of administered prices and the completion of the progressive pension reform.

At the start of negotiations Hungarian legislation did not provide for the independence of the central bank. The Commission reports state that the statutes of the central bank need to be brought into line with the provisions of the Treaty. No additional progress was noted in the reports from 1998 to 2000. Hungary took a step forward in June 2001 with the adoption of a new law which further strengthened the independence of the National Bank. The new 2001 Act entered into force in July 2001. In the area of personal independence for members of the decision-making bodies, it brought the legislation in line with the acquis. Moreover, direct financing by the National Bank is no longer possible. As regards EMU, Hungary's legislation is already aligned to a large extent with the acquis. In July 2002 the Parliament adopted an amendment concerning the determination of the exchange rate regime and the definition of the organs of the NBH and their scope of authority. Hungary's legislation is now aligned with the acquis.

As regards the state of negotiations, Hungary indicated that it accepted and would comply fully with the existing acquis. The administrative structures to implement and enforce the acquis would be put in place. Negotiations on this chapter closed in December 2002. Hungary did not request any transitional arrangements in this area. It is meeting the commitments it has made in the accession negotiations in this field.

This summary is for information only and is not designed to interpret or replace the reference document.

Last updated: 11.03.2004
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