This statement probably holds true in the long term since the ageing society will have a significant effect on the budget as a whole and not just on the pension system. What is really interesting, however, is that the analyses carried out by the Central Bank and the Budget Council have thrown light upon a paradoxical situation, this being that in the short term the structural position of the budget is strong. It appears that without further measures the deficit will stabilise at somewhere around four percent in the coming one to two years.  But, cleansed of cyclical effects, the budget deficit could reduce to 2.5 percent in this period. This means that when the financial crisis is over the budget deficit could settle to this level without intervention.   

Considering the above fact, it is puzzling why concerns are nevertheless repeatedly raised in regard to our budgetary policy. A source of concern for the EU is that over the last six years Hungary was unable to extricate itself from the excess deficit procedure, i.e. the budget was never less than three percent, thus in regard to the Hungarian deficit an attitude developed whereby the country must carry out its promise to reduce its deficit despite the recession. The upswing in the economy has never been enough in itself to set the budget to rights. Governments have always spent the revenue generated during periods when the economy was in an upswing, thus the budget did not decrease but rather increased. Since the standpoint of the EU revolves around the official budget figure, one of the reactions of the government was to attempt to alter the official definition of the deficit by changing the accounting in the pension reform.  The logic behind this is that if it is successful, Hungary's budget will settle at under three percent in the next two years even without intervention and European expectations could be fulfilled.  

The issue of accounting in the pension funds is complicated. However, what is worth noting is that a consistent and proper method of accounting is by no means sure to bring about the favourable results that the government hopes for. In any case, the decisions will probably not be a professional but instead a political one, the results of which cannot be predicted. Taking into account the bureaucratic obstacles it would be surprising if the initiative was successful. The budget policies that can be read from the above initiative are a source of market problems. The majority of the market players understand that the structural position of the market is strong. Thus, keeping to the formal obligations even with the application of temporary measures is acceptable from an economic point of view. However, markets can also see that in regard to the Hungarian budget it is not the deficit that could be a problem but rather its financing, since even though the budget deficit has abated over the last few years, financing from the market during the crisis has decreased. This was compensated by the short-term IMF credit for which, however, payments will have to start from next year. Thus, in the coming years financing from the market will again have to be increased significantly. It is a question whether in a different world market financing situation which the world was in prior to 2008 a similar or greater level of Hungarian debt can be sold to the market players.     

Taking into consideration the growing propensity of the Hungarian population to save it appears that the Hungarian private and institutional players could buy more government securities in the coming years.  Yet even in this event the share left for foreigners will still be large and this is the real source of danger. This could only be reduced if the extent to which the budget needs to be financed decreases. From this point of view the government's pension fund initiative could have the opposite effect to the one hoped for. It's possible acceptance could reduce the official budget but even in this most optimistic case it would significantly increase the financing demand as opposed to what the market players have calculated on the basis of the EU-IMF agreement. This would occur because in this case the deficit would be smaller only "in theory" without any changes in the financing demand, which would eventually lead to a higher deficit than what Hungary had committed itself to. And this is still the optimistic scenario since in the pessimistic version - if the government tried to exploit the greater room for manoeuvre opening up in the area of the official budget - the financing demand would be even greater than what already appears to be worrying for market players.

The government's room for manoeuvre is therefore influenced by this factor and not by the size of the official budget deficit. If the government wants to reassure investors, it must find a reassuring solution to this problem.