Top Hungary banker calls on EU's Rehn to resign

Hungary's central bank chief on Thursday called on the EU's economic affairs commissioner to resign, saying a policy of austerity rather than investment to shore up the eurozone was "mistaken" and risked ushering in deflation. Gyorgy Matolcsy, a former economy minister appointed Hungarian central bank president in March, said the eurozone needed a "Keynesian" change of direction, implying greater public spending. "That is why it would be good if (EU commissioner) Olli Rehn resigned," he told a business conference in Budapest. Although Hungary is not a member of the eurozone, its economy depends largely on EU neighbours that are. It aims to replace its forint currency with the euro in the future. On Tuesday, the Hungarian central bank made its 16th consecutive rate cut, shaving 20 basis points off its main interest rate to 3.4 percent in a bid to spark faster growth. Twelve-month inflation plunged to a 40-year-low of 0.9 percent in October, surprising analysts who had forecast a rate of around 1.3 percent. Hungary's overall growth for this year is forecast at just 1.0 percent. It has recorded three periods of growth following its second recession in four years in 2012. The European Central Bank "has managed to prevent the collapse of the eurozone, but cannot get it back on a growth path with monetary tools, the EU needs fiscal tools instead," Matolcsy said. He said deflation was more dangerous than inflation, and warned the EU faced the same "decade-long" stagnation seen in Japan. "Austerity can lead to civil unrest and the fall of governments, preventing the structural reforms necessary for sustainable growth," he said.