Today was not a good day. The Budapest Stock Exchange (BUX) went down 4.39%. Országos Takarékpénztár (OTP), the only Hungarian-owned bank, lost 8.87%. (Of course, it could have been Citi–which I now call "Village"–with an intraday low under $1.00.) At one point OTP's loss was more than 10% and trading was temporarily halted. The Hungarian forint is steadily weakening. A few days ago when it reached the "psychological barrier" of 300 Ft to 1 euro people couldn't believe their eyes. A few minutes ago when I checked 316.04 Ft had to be handed over if one wanted to buy one measly euro. All those thousands who borrowed in euros or in Swiss francs must be moaning, not without reason. Meanwhile everybody has an opinion about why the Hungarian forint is faring so badly.
The most popular explanation is that Ferenc Gyurcsány himself caused the forint's downfall and the ever increasing crisis when he went to Brussels and tried to sell a program that would have helped the whole East European region. According to his critics he didn't share his ideas with anyone, not even Mirek Topolánek, the current European Union president. However, according to the latest news, that was not the case. Gyurcsány presented his four-point proposal to Topolánek on February 26 (or according to another source on February 24) and surely he must have had Topolánek's okay. However, at the end the Czech prime minister sided with those "proud" countries of Eastern Europe that didn't want to be associated with Hungary and Ukraine, surely the losers of the region. It didn't matter that Gyurcsány kept repeating that Hungary is doing all right and he was asking the money for the whole region–the label stuck. Gyurcsány is described as a pushy guy who always demands something from the European Union and the western politicians are sick and tired of him. It seems that the neighbors condemn him even when he was trying to ease their situation. See a Slovak cartoon. Others also blame Barack Obama who after meeting with Gordon Brown, prime minister of the Great Britain, said the following: "One of the things that Prime Minister Brown and I talked about is how can we coordinate so that all the G20 countries, all the major countries around the world, in a coordinated fashion, are stimulating their economies; how can we make sure that there are a common set of principles, in terms of how we're approaching banking, so that problems that exist in emerging markets like Hungary or the Ukraine don't have these enormous ripple effects that wash back onto our shores, and we're providing them with some help in a coordinated international fashion, as well."
Well, that did it in Hungary. How does Obama dare to compare Hungary to Ukraine! No wonder that the forint started to fall even more rapidly after that speech. Moreover, it takes gall, these people say, to talk about problems that "will wash back to our shores." After all, where did this whole mess start? Not in Hungary. Hungary is the victim of irresponsibility in the American banking system.
Those who defend Gyurcsány claim that the forint's fall is not unique. The Polish zloty and the Czech koruna have also been trending down. I calculated the loss of these three currencies since October 1, 2008, after the collapse of Lehman Brothers, and found that during that period the zloty fell by 28%, the koruna by 12%, and the forint by 23%. In the last couple of weeks the forint has weakened against the euro while the koruna has strengthened, both by about 4%; the zloty has remained largely unchanged.
According to the latest Eurostat figures Hungarian quarter over quarter GDP decreased by 1%. This is actually better than the European Union's average of -1.5%. The greatest decrease was in Estonia with -4.2%, in Germany -2.1%, in France -1.2% and in Italy -1.8%. But there are still countries in the European Union that are doing relatively well: Slovakia (2.1%), Greece (2.6%), Cyprus (3.0%), Austria (0.5%). Hungary may not be at the head of the pack, but in terms of GDP Ukraine is way behind the pack. (Ukraine is just adopting the Western reporting system, so it's hard to make a clean comparison, but its GDP declined 20% in January year-on-year and, looking at a chart that tries to calculate monthly movements in Ukraine's GDP, it looks as if growth was positive through September 2008 and then fell off a cliff.)
Meanwhile SZDSZ and MDF are standing by the recommendations of the Reform Alliance. According to the reform economists and the politicians who support them the recent unfavorable economic trends could be immediately reversed if the world saw that Hungary is ready to tighten its belt much more than Gyurcsány recommended. Because the government without the SZDSZ and/or MDF cannot pass its own program, negotiations behind closed doors are taking place between the government and the framers of the Reform Alliance.
This morning Viktor Orbán made it clear that the program of the Reform Alliance is totally unacceptable to him and his party. According to Orbán, the Reform Alliance is trying "to fix an economic system that failed. The Alliance's remedy I find wanting. History passed judgment on this economic system. The system itself is defective. There is no use of trying to patch it up. An entirely new system must be built." Although he didn't divulge what this new (post-capitalist? post-global?) system would be, he did say that he would insist that half of banking system be in Hungarian hands. He neglected to tell us where the capital outlays would come from.
It is very possible that MSZP, SZDSZ, MDF, and the members of the Reform Alliance will hammer out some kind of compromise and that a new amalgam bill will pass easily with three-party support. Some people think that Fidesz made a mistake in categorically refusing to talk with the Reform Alliance.