FT reports more bad news in a dismal season for Hungary:
Hungary cancelled a bond swap auction on Wednesday as the forint hit a record new low against the euro and fears grew about the country’s planned bid for International Monetary Fund/ European Union financial aid. […]
As Benoit Anne of Société Générale wrote in a note on Wednesday:“We are very near boiling point in Hungary with a crisis that may escalate into something much more serious than a simple macroeconomic crisis (which mind you is already pretty bad). […] On the currency side, the HUF is now trading at record lows and given the huge financial stability risks that this raises, the central bank is now quite likely to go ahead with an emergency rate hike, November 2008-style. But the crisis has also become political. The EU is extremely concerned about the latest political developments and the potential EU response will – no doubt – be harmful to investor confidence.”
Hungary is in serious trouble, and it has done nothing to win itself any friends that might be inclined to offer a hand. In an excellent article in the current AI, Charles Gati details the naked power grabs and antidemocratic policies that have drawn the concern of the State Department and made President Orban’s government the pariah of the EU. Making matters worse, Orban has done everything in his power to antagonize and even demonize the IMF, the one body that could step in if its neighbors refuse to help.With its crumbling welfare state, weak currency, dysfunctional politics and its new black sheep status, Hungary now has few good options. A number of desperate plans have been proposed, none with much chance of success. Hungarians should prepare themselves for a cold winter.Possible silver lining: Hungarians will realize this kind of fooling around doesn’t work, and demand more sensible policies from politicians in the future. Democracy is sometimes a learning process, and the lessons aren’t always cheap.