“The Hungarian authorities have therefore failed to comply with their duty to consult the European Central Bank (ECB)” when passing the law on forex loan contracts, according to a document signed by ECB president Mario Draghi that appeared on the bank’s website on Tuesday evening.

In addition to enacting retroactive legislation, the Hungarian government made several amendments to the draft it sent to the ECB and did not consider its opinion, the ECB adds.

“The draft law was adopted on 4 July, shortly after the ECB was consulted, and before it could adopt its opinion. As a consequence, it was not possible for the Hungarian Parliament to take the ECB’s views into account before legislating. Moreover, the law differs substantially from the draft law as a result of several amendments submitted to the Parliament in the interim, none of which was sent to the ECB in draft form.”

According to the ECB, the retroactive effect “does not seem to be in line” with the general aims and principle of the EU directive which allows member states to further regulate foreign currency loans – on the condition that such regulation is not applied with retroactive effect. Because of the potential economic impact of the new measures, the ECB suggests that the Hungarian authorities carry out a thorough analysis of the possible effects of the retroactive measures because they “could put a significant strain on the banking sector, potentially adversely affecting the Hungarian financial sector as a whole, and possibly resulting in adverse spillover effects on the economy”.

The ECB underlines that “it is of the utmost importance” that a meaningful dialogue will take place between the Hungarian authorities and all the relevant stakeholders, including authorities in other EU member states. The central bank warns of adverse cross-border effects due to the high percentage of institutions owned by foreign banking groups in the Hungarian banking sector.

The opinion concludes that “the possibility of negative effects on the Hungarian economy and financial markets cannot be excluded. This should also be taken into consideration in establishing the further measures on the conditions of the financial settlement between credit institutions and their customers and on the conversion of FX loans into forint so that these measures do not jeopardise macro-economic and financial stability in Hungary.”

Referenced in this article:

http://www.ecb.europa.eu/ecb/legal/pdf/en_con_2014_59_f_sign.pdf