Financial aid talks for Hungary (finance.ninemsn - Financial Year)

But the two institutions had refused to start formal negotiations on assistance amid concerns over far-reaching changes to the country's legal system.

Financial Year

The EU has argued that new laws that undermined the independence of the central bank and the judicial system hurt investor confidence and therefore the effectiveness of any international aid.

In a meeting with European Commission President Jose Manuel Barroso, Hungarian Prime Minister Viktor Orban promised to change the legislation on the central bank, restoring its independence, Commission spokesman Olivier Bailly.

Orban also promised to address several areas of concern in the Hungarian judicial system that have been identified by the Council of Europe, an international institution that focuses on human rights.

"These elements will certainly allow more confidence in the legal environment in Hungary and therefore give us the possibility to lift our opposition to entering into formal negotiations with Hungary," Bailly said. He declined to comment on how much aid Hungary may need.

Budget Deficit

Budapest has found itself under increasing pressure from the EU and civil-rights organisations, which fear that Orban and his conservative Fidesz party are engaged in a power grab that restricts basic freedoms and civil rights in the country.

The central bank law, which Orban has now promised to adapt, would have installed a new body above the bank's governing council, which takes important decisions on monetary policy, such as the setting of interest rates. Bailly said that the promised changes would restore the independence of both the central bank's council and its president.

The Council of Europe, meanwhile, has raised concerns over the creation of a similar body, the National Judicial Office, whose president ends up holding a lot of power over of the judicial system, including the right to appoint judges.

It has also pointed to restrictions of press freedom and a requirement for "balanced reporting" for public media. Here, too, Orban's administration has created a so-called Media Council, which oversees everything from television to the internet and the printed press.

Those concerns will have to be addressed before negotiations on financial aid can be concluded, Bailly said.

Daniel Hoeltgen, a spokesman for the Council of Europe, said discussions with Budapest are "fruitful and ongoing" and he expected the Hungarian government to respond to the issues "sooner rather than later."

Separate from that process, the European Commission decided to take Hungary to the European Court of Justice over two other laws that it says conflict with the bloc's treaty.

One concerns the independence of the country's data-protection authority, while the other would lower the retirement age for judges and notaries from 70 years to 62 years. That law would force 10 per cent of judges and 25 per cent of notaries to retire this year, Bailly said.

Hungary is part of the 27-nation EU but does not use the euro. Its own currency, the forint, has come under pressure in recent months amid concerns over the country's finances.