Hungary will not face any immediate consequences as a result of the suspension of talks on a joint loan package from the EU and the International Monetary Fund, the European Commission confirmed, on 19 July. The talks broke down on 17 July over the Hungarian government’s failure to slash spending in line with recommendations, and a disputed bank tax, which the IMF says could “adversely affect lending and growth”. A Commission spokesman said there was no deadline for the resumption of talks and that there were no “direct and imminent” consequences for the country, although Hungarian Economy Minister Gyorgy Matolcsy told CNBCnews channel that negotiations with the IMF will resume in September, according to AFP.

Hungary had promised to slash its budget deficit from 3.8% of gross domestic product - 0.8% higher than the EU’s upper limit - to under 3% by next year, one of the conditions for receiving a €20 billion loan from the bloc and the IMF. The EU has already paid out €5.5 billion of its €6.5 billion share, but Hungary said last year that it would not need to draw down the last tranche as it was able to go to the markets itself. The loan will run out at the end of this year.

In a statement released at the weekend, Economic and Monetary Affairs Commissioner Olli Rehn said the government would have to take “tough decisions” on spending to meet the 2011 deadline. “Care will also be needed to ensure a stable environment for both domestic and international investors,” he added. The EU mission also had major concerns on reforms planned for the transport, financial and health sectors, saying that several draft laws proposed by the government were out of kilter with EU rules. The IMF has said that a number of state-owned bodies need to be restructured to prevent a further drain on public finances.