Disharmony between the Central Bank and the Government in Hungary
Disharmony between the Central Bank and the Government in Hungary

Summary/Abstract: There is rarely agreement between governments and central banks, and this is understandable given the conflicts of interest arising from their various roles. Government economic policy is focused on growth, which on the one hand allows incomes to grow and increases employment, while on the other hand giving the governing parties room for manoeuvre in their socio-political initiatives, thereby improving their prospects of re-election. In the short term at least, government goals regularly face opposition from price stability targets, which are a clear priority in the policies of central banks in the European Union. It is the governments – driven by the necessities of four-year political cycles – who think in terms of short-term goals: no matter how attractive and far-sighted the idea of price stability may be, pursuing such goals would hamstring prevailing fiscal policy. Because of this short-term conflict of interests, “checks and balances” are provided by independent central banks, which must serve government economic policy only if it does not compromise their primary goal of price stability.

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