Hungarian markets are braced for a fall today after financial talks between the government and an International Monetary Fund/European Union delegation broke down acrimoniously on Saturday.
A regular budgetary review, held under the terms of a $25bn loan programme, ended in disarray with the visiting team insisting Budapest had to rethink its proposals. While Hungary has no immediate need for IMF/EU funds, the negotiations’ collapse leaves the country vulnerable to market pressures and raises fears of contagion in other shaky European economies – including in the eurozone.
As Peter Attard Montalto of Nomura Securities, writes in a note: “This is important news for both EM (emerging markets) and also developed markets and risk.”
The key point is that after weeks of exchanges in which Viktor Orban’s new government was warned by Brussels and Washington to stick to a prudent budget, the IMF/EU has called Budapest’s bluff. It can go out on a limb with its economic plans – but if Hungary runs into another financial crisis, the IFIs will not feel obliged to stage a rescue, as they did in 2008. Not only is a new programme off the agenda, Hungary does not even have any more access to its present plan.
The IMF/EU is sending a warning that will be heard well beyond Hungary’s borders – despite its apparent tolerance of lax budgets in 2008-9, it now plans to get tough. With the global economy recovering, however weakly, it is laying down the law. No free riders.
Further details on events in Budapest from Chris Bryant on ft.com.
Stefan Wagstyl
Josh Noble
Rob Minto
Pan Kwan Yuk
Jonathan Wheatley
Heba Saleh