HUNGARY: Hungary's ruling Socialists dumped the Prime Minister, Mr Peter Medgyessy, yesterday, seeking to revitalise their ailing government on the back of a stronger economy and EU entry.
Mr Medgyessy will be replaced by Mr Peter Kiss, former labour minister and a senior figure in the Socialist Party, the local MTI agency said.
The Hungarian forint fell as investors saw Mr Medgyessy and Finance Minister Tibor Draskovics as guarantors of the fiscal discipline needed to bring Hungary into the euro zone at the end of this decade.
"Markets are now watching to see if Draskovics stays," Mr Andrew Roberts, analyst at Citibank, said. "The manner in which Medgyessy has left suggests that fiscal policy may not be tightened as much as necessary."
Mr Kiss is a relatively unknown former engineer, who played a vital role in creating the Socialist Party from the ashes of the Communist Party in the early 1990s.
Mr Medgyessy, a former banker with communist roots, follows in the footsteps of former Czech prime minister Mr Vladimir Spidla, who paid the price for a dismal showing by his Socialist Party in the European Parliament elections in June.
Tensions between Mr Medgyessy, who was close to the Socialists but held no party membership, and the two ruling groups increased in recent weeks.On Wednesday he sacked three ministers, including a senior figure from the junior coalition party, the liberal Free Democrats.
The party demanded talks with Mr Medgyessy and the Socialists, which ended with the two parties reasserting their desire to remain in government together.
Mr Medgyessy responded with a threat to resign but his fate was sealed at a later meeting of the Socialist leadership.
"The Socialist Party is committed to maintaining the coalition and to a successful government and therefore decided to use its right . . . to nominate a (new) prime minister," party president Mr Laszlo Kovacs told a news conference.
The Socialists and the Free Democrats will meet again at the weekend to discuss the cabinet line-up.
Parliament, where they have a slim 10-seat majority, will vote to approve the new prime minister on September 6th.
If confirmed as the new prime minister, Mr Kiss (45) is likely to maintain the bulk of the former government's policies, according to Mr Kovacs. "The main task of the new government is to continue carrying out the government programme but this does not mean that there could not be some changes," he said.
The Socialists are still smarting from losses in the European elections and many in the party want to pursue tax-and-spend policies to catch up with the conservatives, poised to win the next election in 2006.
Hungary is running big budget and current account deficits which means it must pay by far the highest interest rates in the enlarged European Union to compensate holders of the forint and bonds for past failures to deliver on economic reform.
But the economy is strengthening as growth picks up on the back of exports.