ECB ‘concerned’ over independence of Hungarian central bank

The European Central Bank expressed concern Thursday over proposed changes by Hungary to its central bank law, saying they could undermine the independence of the Hungarian central bank.

“The Governing Council of the ECB expresses its concern about … provisions in the draft law on the MNB (Magyar Nemzeti Bank) that could undermine the central bank’s independence,” it said in a statement.

In an opinion adopted by the governing council at a meeting on Thursday, the ECB said the proposed changes gave rise to “concern as to whether (they) could be used to influence the decision-making process, to the detriment of central bank independence.”

Central bank independence is enshrined in European Union treaties but Hungarian Prime Minister Viktor Orban is hoping to use his two-thirds majority in parliament to push through changes in the make-up of the decision-making bodies of the MNB, with whom he has frequently clashed over policy.

Orban, who makes no secret of his dislike of MNB chief Andras Simor, is seeking to dock the latter’s pay and curb his power to appoint key members of the MNB’s decision-making monetary council.

Ever since Orban came to power in April 2010, tensions have risen between the two men because the prime minister believes the MNB’s monetary policy decisions often thwart the government’s goal of boosting growth.

In a further escalation of the conflict last week, Budapest unveiled plans to merge the central bank with the country’s financial watchdog, effectively a demotion for MNB governor Simor because the new body is to be headed by a figure nominated by Orban and appointed by President Pal Schmitt.