Moody's believes that Hungary's reforms are "unambiguously negative" for the country's credit quality. Keen to reduce public debt, the Hungarian government decided last year to force savers to transfer their assets back to the state, by stripping them of a state pension if they did not. In December, Moody's downgraded Hungary's bonds to Baa3 - a notch above junk status.
Moody's analyst, Dietmar Hornung, explains that the additional revenues will allow the government to increase spending without missing its annual budget targets, therefore increasing the long-term deficit. Secondly, the pensions reform "reduces fiscal transparency", Hornung writes, and means the government is taking on more exposure to various unquantifiable risks, such as the chance its citizens will live longer. Finally, he also believes the "dismantling of the private pension system will adversely affect the liquidity in domestic bond and equity markets".
However, the pensions industry in Western Europe will be very pleased that MEPs seemed to decide that Solvency II - a set of strict rules for insurance companies - should not be applied to pension funds. This is a wheeze the Commission has floated regularly over the years, and did so again last September.
Chris Verhagen, secretary-general of the European Federation for Retirement Provision, a trade body, said: "My reading of the Parliament’s work is that there is no and will be no majority in Europe to apply Solvency II-type quantitative requirements to [pensions]."
Full article (FN subscription needed)
© Financial News
Key
Hover over the blue highlighted
text to view the acronym meaning
Hover
over these icons for more information
Comments:
No Comments for this Article