Perhaps because it is not in the eurozone, the recent turbulence in Hungary has not gotten a huge amount of attention internationally. But Budapest and Brussels are currently on a collision course that could have significant consequences for the region’s economic stability.
At issue is whether the European Union and the International Monetary Fund will provide financial assistance to Hungary at a time the florint is in free-fall and the government’s borrowing costs are skyrocketing, with 10-year bond yields now above 9 per cent, well above levels where Ireland, Greece and Portugal were forced into bail-outs. Standard & Poor’s downgraded Hungarian bonds Wednesday evening, citing the unpredictability of prime minister Viktor Orban’s economic policies – including his attempt to assert more control over Hungary’s central bank.
In a letter to Orban sent this week by José Manuel Barroso, the European Commission president, and obtained by the FT, Barroso drives a hard bargain. Not only does he “strongly advise” Orban to withdraw the proposed laws governing the central bank, but he makes clear that any assistance will come with tough conditions.