Split looms in Hungarian coalition after dismissal By David Chance
41 minutes ago

Hungary's prime minister dismissed his health minister on Monday in a crisis that could break up the coalition government and end its economic reforms.

Socialist Prime Minister Ferenc Gyurcsany's removal of Agnes Horvath, a member of the Alliance of Free Democrats, followed a defeat in a referendum on health reform and prompted her party to call a meeting on whether to quit the coalition.

The Socialists do not have a parliamentary majority without the Free Democrats' backing. But if they did quit the coalition, Gyurscany could keep power by persuading just four of them to join the Socialists, enough for his party to clinch a majority.

"The parliamentary faction proposes ... (the party leadership on Monday evening) decide on withdrawing the Free Democrat ministers and state secretaries from the government," party leader Janos Koka told reporters after meeting deputies.

Kokoa said Gyurcsany had broken the coalition agreement by dismissing Horvath. He said that if the party decided to quit the coalition, ministers would not be withdrawn until April 30.

The Free Democrats have 20 representatives in the 386-seat parliament. The Socialists have 190, four short of a majority.

The forint hit a low of 261 to the euro at 6:00 a.m. EDT, down from 257 on Friday, on concerns the coalition would not survive and that the risk had increased of the European Union and NATO member state breaking promises to cut its budget deficit.

BREWING CRISIS

A crisis has been brewing in the coalition since Gyurcsany told his party on Saturday that he would scrap health reforms promoted by the Free Democrats.

The government lost an opposition-backed referendum on March 9 that struck down fees for doctor visits.

An early election is unlikely in the central European state of 10 million people, which ended communism in 1989. But the government is now hamstrung and the risk that Gyurcsany could be forced out by his own party has risen, political analysts said.

"If the Free Democrats don't take part in the government, this means that they have given up implementing their program," said political analyst Zoltan Kiszelly.

Using soccer terminology for differing degrees of punishment for foul play, he said: "This a very serious yellow card. The red card would be if they failed to support the government in parliament."

The parties have served three terms together, from 1994 to 1998 and from 2002 until now, in a frequently tetchy relationship.

"I think this coalition will stay together until (an election in) 2010. I think that both partners will see that in terms of stability, maintaining the coalition is key but I think we will need to revise our political goals," said Ferenc Juhasz, deputy president of the Socialist Party.

The outcome of the crisis will be closely watched by investors who hold billions of dollars of Hungarian bonds and who are already nervous about a possible return to overspending before the 2010 election.

A central bank meeting was due at 8:00 a.m. EDT at which interest rates were expected to be increased by 25-50 basis points from 7.5 percent.

Despite assurances by Gyurcsany that the government will stick to plans to cut the budget deficit, which it projects will fall to 3.2 percent of gross domestic product in 2009, few investors are in a forgiving mood because of past excesses.

Gyurcsany's Socialists and the Free Democrats won re-election in 2006 on the back of large tax cuts and spending rises which resulted in the budget deficit ballooning to 9.2 percent of GDP, the largest in the EU.

(Additional reporting by David Chance, Sandor Peto, Balazs Koranyi; editing by Timothy Heritage)