EU Backs Hungary's Reform Program

Hungary's new prime minister won European Union backing on Tuesday for his crisis management plan aimed at lifting the country from severe recession while keeping a tight rein on public finances.

"I believe Hungary has the potential to put these rather dark days behind it and become an economic success story," European Commission President Jose Manuel Barroso told a news conference after meeting Hungarian Prime Minister Gordon Bajnai.

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The EU has contributed significantly to a 25.1 billion euro ($32.7 billion) package led by the International Monetary Fund to rescue the Hungarian economy, which is expected to shrink by 6 percent this year.

Bajnai took over as prime minister in April from Ferenc Gyurcsany, who had stepped down to make room for a cabinet with wider backing to lead the country out of crisis.

He plans spending cuts worth 1,300 billion forints ($5.7 billion) in 2009 and 2010 but also needs measures to restart the economy.

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The government plans to keep its budget deficit below the EU's cap of 3 percent of gross domestic product.

The planned measures include cuts in social spending and state subsidies, with tax changes more supportive to businesses and programs by the state-owned MFB bank to help small and medium-size enterprises.

"We believe Hungary is taking now the right steps to turn this round and achieve sustainable growth and jobs in the future," Barroso said.

"The Commission welcomes in particular the crisis management measures announced earlier this month," he said, adding Bajnai had assured him of determination to meet all conditions attached to the IMF rescue package.

Bajnai said long-term structural reforms, such as of the pension system, to stabilize the economy would be his priority rather than one-off austerity moves.

"What Hungary needs is not simply to reduce costs short-term, but we need measures which are of structural nature, which will put Hungary on a long-term growth path," he said.

Barroso and Bajnai made no reference to the possibility, raised by the prime minister this week, of Hungary having a budget deficit higher than 3 percent of GDP this year to boost the economy.

• Slideshow: How Eastern Europe Entered the Crisis

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