As the cost of insuring Irish debt soared, Hungary’s unorthodox measures dramatically cut its national deficit to the required 3.8%, according to figures released last night in Budapest.
Mr Matolcsy, who will chair EU finance ministers’ meetings over the next six months, also warned there are new signals that the markets were preparing for fresh attacks on the euro. The most vulnerable countries are considered to be Portugal, Spain and Belgium.
Italian Finance Minister Giulio Tremonti had earlier likened the markets to a video game.
“A monster appears, you fight it, you win, you relax and immediately another monster appears, even more powerful than the first,” he told a convention in Paris.
Mr Matolcsy agreed: “We have signals the activity is increasing and the situation is going back to pre-crisis. Tremonti is right.”
He said that Hungary, which has taken over the six-month presidency of the EU, had been warned to “expect the unpredictable”.
Contrary to the German position on the issue, he was adamant that eurobonds would be part of the permanent crisis mechanism designed to help euro countries in trouble post-2013.
In the meantime, he said that Hungary would continue implementing its own measures to address its economic problems. These include a once-off crisis tax on banks and large companies; taking over private pension funds to cut the deficit to 3% of GDP in 2011 and reduce the debt.
American advisers and economists had advised them to use unorthodox measures, Mr Matolcsy said, and put the emphasis on balancing their national budget. But austerity measures were not enough, since it was also essential to increase competitiveness. However, he said unorthodox methods were needed in these unorthodox times. While he would not advise Ireland, he suggested the country should “think outside the box”.
He was a fan of the Irish economy and used it as an outstanding example for economists. “I am a believer and trust Ireland.”
Hungary, which was granted €20 billion in loans by the EU/IMF two years ago, last year refused to take the next tranche and implement the austerity measures demanded, and returned to the market for funds. They cut labour and corporation tax and hiked VAT to 25%.
Hungary’s prime minister Viktor Orban had criticised the IMF and said: “The IMF demanded things that are contrary to what Hungary needs. We thought the world was going to praise us because we do not take another loan from the IMF.”