Hungary president urges early elections

Hungary's president called for early elections on Wednesday as a respected former finance minister warned the country faced "a choice between more crisis or bankruptcy".

President Laszlo Solyom said that with parliamentary elections due in spring 2010 at the latest, appointing an interim prime minister was just a short-term response to the country's economic and political troubles.

Lajos Bokros, the architect of painful spending cuts as finance minister in the mid-1990s, said Hungary no longer had any fiscal tools in reserve to soften the impact of a deep recession.

"Hungary is in a unique trap," Mr Bokros told the Financial Times. "It's not comparable to Poland or the Czech Republic, which can implement counter-cyclical policies to counteract the crisis. Many, including the prime minister, don't understand this, and still want fiscal expansion [...] But for us, it's now a choice between more crisis or bankruptcy."

Hungary's political parties have been struggling to agree on a new, non-political prime minister since Ferenc Gyurcsany, prime minister, on Saturday became eastern Europe's second political victim of the economic crisis.

His promise to step aside followed the resignation of Ivars Godmanis, the Latvian prime minister, over his handling of the economic crisis. On Tuesday, Czech MPs passed a no-confidence vote against the coalition government of Mirek Topolanek, the centre-right prime minister and current holder of the European Union's rotating presidency.

Mr Gyurcsany said his presence had become a hindrance to the passage of badly needed economic reforms as the country slides into recession. The president can call new elections only if Mr Gyurcsany actually resigns rather than allowing himself to be replaced.

Candidates floated at party negotiations have included Mr Bokros and Gyorgy Suranyi, a former central banker who is currently head of CIB Bank, a subsidiary of Italy's Intesa SanPaolo.

Though both names were welcomed by markets, Mr Bokros was rejected by the Socialists who believe his stabilisation plan is too brutal, while Mr Suranyi has said he will only accept the prime ministership if he is supported by all four parliamentary parties. This is unlikely, since Fidesz, the centre-right opposition party, insists on early elections.

With little chance of reaching agreement on heavy hitters, the Socialists and the Free Democrats, their former coalition partners, have been discussing candidates including a former historian who headed the country's Academy of Sciences.

But with investor confidence in Hungary at an all-time low, any new prime minister will have to act fast to restore the fiscal credibility of Hungary, which was forced to turn to the IMF for a €20bn support package last autumn.

Gabor Ambrus, an economist at the London consultancy 4cast, said earlier this week: "If somebody of Mr Bokros' calibre is appointed, it would be very positive[...] The real question, though, is whether the appointee will be able to put together a credible plan." A weak candidate could spark further investor flight, he said.

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