EXCLUSIVE - ZOLTAN KOVACS, INTERNATIONAL SPOKESPERSON OF THE GOVERNMENT IN BUDAPEST:  "Banks have abused their dominant position and have acted to the detriment of common citizens"

Editor: For a few years now, Hungary has been undergoing a process of restructuring as a country. The Prime Minister Viktor Orban made decisions as a country that have shocked the European authorities (imposing taxes on companies, nationalizing private pension funds, raising the taxes on financial transactions, changing the Constitution etc). What is the Government looking to achieve through this plan and what are your results? What else do you still have to do to complete it?

Zoltan Kovacs: The 2008 crisis showed that the previous system the country was based on cannot function any further. In 2010 the Orbán government took over a country close to economic and fiscal collapse, resembling the situation in Greece with the close-to-impossible task of stabilizing the economy and creating an operational system. The first step was creating a new constitution, laying out the basic rules, upon which a work-based state can be built. The Government managed to stabilise the economy, exit the excessive deficit procedure, repay the IMF loans and achieve a 3.9% GDP growth. In the past four years this Hungarian model has been subjected to the most thorough scrutiny from the European Union. The country is the only EU member, which has been fully audited and, when asked by the top EU institutions, even made the required amendments. Now that the foundation of the Hungarian model has been set, work can commence to translate these into the country's legislative system.

Editor: Will you be resorting to loans from the international financial institutions? What is Hungary's relationship with them currently like?

Zoltan Kovacs: It has been proved that reliance on loans from international financial institutions is counter-productive. The Hungarian model has proved to be effective, showing its results in economic figures, with the deficit under 3%, the number of employed people steadily rising and a GDP growth of 3.9%.

Editor: Prime minister Viktor Orban has been criticized for the measures which he took concerning the financial system in Hungary. What is your opinion regarding the relationship between the Hungarian government and the banks in the system?

Zoltan Kovacs: This Government has spoken out for equal burden sharing, recognizing that the citizens of Hungary cannot be taxed any further, while financial institutions and multinational companies extract huge profits from the country. There were around 750,000 so-called toxic or foreign currency loan contracts in 2010, having a negative effect on the everyday life of 1.3 million Hungarians, crippling a large part the country's population and also its economy, but at the same time providing profits to banks. The Orbán government made several measures to ease this situation, managing to reduce the number of such loans significantly and by adopting the loan compensation act, with full support from Parliament. This act is based on the Kuria's (supreme court) ruling, and seeks to compensate borrowers whose loan agreements were unilaterally modified by banks. Protecting the debtors and settling their legal situation is one of our most urgent problems.

Editor: You have already passed a number of measures that were disadvantageous to banks, introducing the biggest special tax in Europe and a tax on financial transactions. You have also passed a program for the early repayment of loans denominated in foreign currencies, at an exchange rate below the one in the market. Did foreign banks threaten to exit Hungary?

Zoltan Kovacs: If banks wish to leave, the Government can step in to continue, as seen in the case of MKB. Past experience shows that foreign owned banks usualy not only hinder resolving the crisis, but also deepen it by extracting funds.

Editor: Will you agree to having the "bail-in" procedure being used in Hungary (ed. note: saving a bank with the creditors' and depositors' money), in the event of a bank default?

Zoltan Kovacs: The Hungarian Government does not wish to burden the clients with the financial responsibility of their banks.

Editor: How do you think the banking system will react in December, when it will be forced to convert the loans denominated in foreign currencies to forints? Romanian banks have threatened with filing a request for the beginning of the infringement procedure against Romania.

Zoltan Kovacs: From EU and Hungarian court decisions, it is evident that banks abused their dominant position and acted in an unfair manner, at the expense of ordinary citizens. All banks have their right to turn to courts for a legal settlement but we are more than sure that the legislation accepted by Hungarian Parliament will stand every and any test. I would also like to point out that Parliament, together with the Central Bank, is working on a solution to handle this issue in a reassuring manner.

• The conflict in Ukraine: "Hungary's economy is built on exports, so economic sanctions are against our national interest"

Editor: How is Hungary being influenced by the Ukrainian conflict, by the sanctions imposed by the EU on Russia and by the embargo imposed by Russia on EU member countries? The Prime Minister stated that Europe has shot itself in the foot when it imposed economic sanctions against Russia and that you will be supporting EU member states that are interested in the slowing down or the stopping of this process of separation from Russia. Have you found such countries for Hungary to ally itself with?

Zoltan Kovacs: The current policy of sanctions hurts most of the EU member states more than it does Russia, therefore it would be worth re-thinking the entire policy. While we are standing firm with our NATO and EU allies in pushing for a swift and peaceful diplomatic resolution of the conflict, Hungary's economy is built on exports, so economic sanctions are against our national interest. Many member states, including Slovakia agree with this approach, since most of them have an even larger volume of trade with Russia.

• Relationship with Romania

Editor: Are you pleased with the policy of the current Romanian government?

Zoltan Kovacs: We do not comment on the internal affairs of any country.

Editor: How would you describe the relations between Romania and Hungary, from an economic, political and diplomatic point of view?

Zoltan Kovacs: Romania is our neighbor, therefore we have plenty of common projects on several fields of co-operation. Regarding economic cooperation, we can speak about a clear success-story: Romania is the second largest export market for Hungary. Our bilateral trade turnover is remarkable (6,7 billion euros), with a Hungarian export surplus of about 2,5 billion euros. In order to tighten economic relations, infrastructure has to be further developed: good news is that next year we will open the first motorway connection between our countries at Nagylak/Nadlac. We also hope that the Transylvania highway will be finished in the foreseeable future. Apart from these, we are planning to build local roads to reconnect people living on both sides of the border. Energy is also a topic high on our agenda: we have finalized the gas interconnector between our countries in 2010 so gas can be sent from Hungary to Romania. Now we need the Romanian side to make the necessary investments so that the pipeline can work in the opposite direction as well. Speaking about politics, we would need more dialog in order to find suitable solutions. I'm confident that after the presidential elections in November, we will have the opportunity to conduct a constructive discussion with our Romanian partners in all matters of common interest.

Editor: What do you think are the odds of "Tinutul Secuiesc" project in Romania being successful?

Zoltan Kovacs: The situation of the Hungarian community in Romania is a basic element of our relationship. It has been frequently stated that the Hungarian government considers the autonomy aspirations of the Hungarian community in Transylvania legitimate and supports it. The recently released autonomy statute of the RMDSZ/UDMR is a step in the right direction, we hope that it will bring on an argument-based debate and make it clear for the Romanian majority that there is nothing to fear. Various examples from all over the world show that communities living in well-functioning autonomies are strong and can successfully contribute to the prosperity and stability of the whole country. We are convinced that an autonomous region in Romania would serve the interests not only of the Hungarian community but of the Romanian majority as well, thus contributing to a stronger Europe.