Prime Minister Viktor Orbán is hoping to reach a deal with the European Commission on Tuesday to rework laws critics say undermine public institutions so he can revive stalled international aid talks. He has cut taxes for wealthy families but raised them for banks and foreign firms and introduced legislation tightening control of the central bank, data protection agency and the judiciary since sweeping to office in 2010. His efforts to centralise power and stack Hungarian institutions with party loyalists have drawn criticism from Brussels and Washington, which fear they stifle democratic freedoms in the ex-communist country of 10 million.Orbán has lost a significant part of his support at home, while the economy is heading for recession and borrowing costs have soared to more than 9 percent as investors take fright. Analysts say an aid deal is needed to keep financial markets open. Orbán will meet Commission President José Manuel Barroso on Tuesday to present a clear timetable for legal changes that Brussels finds acceptable enough to give the green light to aid talks with the EU and International Monetary Fund. "The budget is ultimately unsustainable, that is why even if Hungary does have cash stockpiles in the short term it still needs an external backstop and change in policy direction that goes with that," said analyst Peter Attard Montalto at Nomura, referring to the EU/IMF aid. A $13 billion private pension grab produced a rare fiscal surplus last year, buying Hungary some time before it must borrow 5 billion euros to fund repayments to bondholders and to the EU and IMF for an earlier loan. A top government official said Hungary could have a new funding deal in place worth around 17-20 billion euros by March or April. On Tuesday, EU finance Ministers will also discuss Hungary's budget after the bloc warned it may suspend development funds next year unless Budapest brings its budget deficit below the EU's 3 percent of GDP ceiling. Orbán had promised to take Hungary on an independent course that would not bow to pressure from external parties such as the IMF and EU. But after all the important credit rating agencies cut Budapest's debt to "junk", sparking a market selloff that drove the forint to a record low against the euro and pushed bond yields above a ruinous 11 percent, Orbán promised to reverse some policies that have defined his administration, a major political climbdown. Hopes of a deal have boosted market sentiment, pushing the forint 8 percent higher since the Hungarian currency hit an all time low of 324.2 per euro on Jan. 5. The EU Commission says the new laws on the central bank, the retirement age of judges and the data protection authority violate EU rules, and has given Hungary one month to change them or face legal action. That has left few choices for Orban, who demonised a 2008 austerity programme prescribed by the IMF and which undermined the previous government, catapulting him into power. Stability concerns will also feature high on the agenda of the central bank, which is expected to hike interest rates at a regular policy meeting on Tuesday, having already boosted rates a combined 1 percent since November to shield Hungarian assets. A recent Ipsos poll showed 84 percent of those asked thought the country was on the wrong track, while many are now bracing for yet another economic crisis and potentially a new austerity package that may accompany any IMF lending."At least now I cut the expenses that weren't necessary to begin with," said Judit Fekete, a 34-year-old secretary. "What I do now is, for instance, I quit smoking... I try to look at the positive side of things, otherwise I would go crazy."

Source: Reuters