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17th Aug 2022

Romania and Bulgaria could beat Hungary to euro, expert says

EU candidates Romania and Bulgaria - often cited for corruption and EU accession problems - might end up beating EU member Hungary to joining the euro, ratings agency Standard & Poor's (S&P) says.

"Hungary might come in after Romania and Bulgaria which have a better financial track," S&P analyst Kai Stukenbrock said in London on 4 July, Polish agency PAP reports.

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  • Hungary's cutback programme is not good enough, S&P says (Photo: European Commission)

"Hungary is a big challenge...a lot more has to be done there," he added, predicting Budapest's deficit will hit 11 percent of GDP this year and 8 percent by 2008.

The forecast contrasts with Hungarian government figures which predict 9.4 percent this year and 5 percent by 2008, based on drastic spending cutbacks that could see thousands of civil servants sacked.

If the S&P scenario comes true, it would make a mockery of EU membership rules which stipulate a 3 percent ceiling on budget deficits, among other criteria.

S&P - which specialises in credit-worthiness - lowered its credit rating for Hungary in mid-June saying debt is spiralling out of control due to a legacy of vote-grabbing generosity on health, social security and pensions.

The country slipped from A- to BBB+, joining Poland as the only other EU state not to enjoy an A grade score, with S&P unconvinced by Budapest's cutback plans.

Romania and Bulgaria plan to join the EU in January 2007 but will have to wait until a final European Commission report in autumn, with a political risk of delayed accession until 2008.

The European Commission predicts Romania will have a budget deficit of 2.3 percent this year and 5.4 percent in 2007, while Bulgaria will enjoy surpluses of 3 percent and 1.9 percent.

S&P's Mr Stukenbrock made the remarks at a press conference launching the agency's new report on EU member states' fiscal flexibility - a measure of governments' ability to react to economic shocks without defaulting on debt payments.

Fiscal flexibility is one of several tools used to assess a country's credit rating.

The fiscal flexibility report shows small countries Cyprus, Ireland, Estonia, Lithuania, Malta and Luxembourg have the most room for financial manouevre.

The UK, Spain and the Czech republic also placed higher than France and Italy. But Sweden, Denmark, Germany, Austria and Belgium fell at the bottom end of the scale.

"Countries endorsing relatively higher levels of economic liberalism seem to dominate the top quartile," the report stated.

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