Hungary: Friendless and Alone
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  • Bart Hall (Kansas, USA)

    A number of my in-laws are Hungarian and I speak the language fairly comfortably. Neither makes me any sort of expert, but I do love the country and its people.

    Hungary has several profound challenges, most notably demographics. The raw fertility rate is about one child per woman below replacement levels, and the population is decreasing by about 1/2% per year. In the last thirty years Hungary’s population has dropped from 11 million to under 10 million.

    You cannot maintain an old-age pension system, to say nothing of a welfare state, with those sorts of demographics.

    The struggle of emerging from communism has meant the persistence of a weak economy and children are expensive enough that the Hungarians have a saying “Kicsi vagy kocsi” — little ones, or a car [but we can’t afford both].

    The Hungarian economy and many families have been clobbered by the previously widespread tendency to obtain a home mortgage from Austria in Euros because the interest rates were quite a bit lower. Like many arbitrage carry trades it eventually blew up when the demand for Euros to make mortgage payments drove down the value of the Forint.

    To support the Forint the government raised interest rates which not only drove more mortgages to Austria but also hurt many business, who began to lay off workers.

    Many mortgages are now on the verge of default and the Austrian banks are sitting on more toxic Hungarian (and other central European) debt than the entire GDP of Austria.

    Hungary’s best hope at this point is a deep deflationary depression which may well be short. Otherwise it mightn’t be so deep, but will grind on for years.

    And birth-rates almost invariably decline sharply in a depression. Nagyon nehez.

  • gavin

    am i missing something. it seemed that a few yrs ago Hungary was doing alright. what changed between 1999 ’til now?

  • Gene

    I vacationed in Budapest in fall 2008 and was told by everyone that they would join the Euro in January 2009 and the Forint would disappear. Apparently that didn’t happen … what did I miss?

  • WigWag

    Relatively speaking, Poland, the Czech Republic and even Slovakia are doing much better. I wonder why the transition to capitalism in those nations proceeded so much more smoothly than in Hungary.

  • Bart Hall (Kansas, USA)

    The answer to #s 2,3, and 4 is about the same — it was *apparently* doing well because the underlying problems were papered over with unsustainable borrowing, especially when the former communists were in power under another party name. Klaus, Havel, and Walensa formed much better governments and did not attempt to mask the transitional dislocation.

    A few years ago Hungary, Hungarian business, and Hungarian consumers ran out of stuff to sell to foreigners — didn’t matter if it was government agencies privatised to the Austrians, the Tokaj wineries (to Japanese), crystal factories (to the Germans), or classic old bedspreads to anyone interested.

    They couldn’t meet the criteria for adopting the Euro, but at least Hungarians have a vastly better work ethic than the Greeks, or for that matter the Spaniards. Part of the reason for the Forint’s fall is that (unlike Euro-zone nations) Hungary retains the ability to inflate its way out of old debts, the cost for which is invariably devaluation.

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