The budget, the forint, and other problems in Hungary

The deadline for submitting the 2012 budget is approaching and there is still the greatest uncertainty about the basic figures. One prediction after the other about the value of the Hungarian forint as well as the country’s economic growth turns out to be faulty. Here is a telling graph of the situation:


In less than a year the following prognoses surfaced. At the beginning of the year the government predicted a 3% growth but by April the optimism of György Matolcsy, minister of economics in charge of the so-called Convergence Program, had grown. He predicted an economic growth of 3.6%. Since the announcement of this ridiculously high figure optimism has been shrinking. Right now the Hungarian government is talking about a GDP of 1%, but according to foreign and domestic analysts even that figure is too optimistic a prediction. Neal Shearing, chief emerging-market economist at Capital Economics, projects that Hungary’s economy will contract 0.5% next year. András Vértes of GKI (Gazdaságkutató Intézet) is even more pessimistic. The last time I heard an interview with him his prognosis was an economic contraction of perhaps 1.5%.

Meanwhile Hungary’s currency, the forint, is down 12% against the euro since September which is keeping foreign investors away and creating a dilemma for policy makers. If the Hungarian National Bank were to lower interest rates that would help sagging economic growth but then the forint would fall even more. And if that happened, the millions of people who took out loans in foreign currencies would be in even greater trouble than they are now. Meanwhile, as it is, Hungary’s sovereign debt load is growing because of the weak national currency. According to Shearing “you can’t really grow your way of the problem.”

According to other analysts even if calm returns to the world markets “Hungary will still be viewed as a riskier market.” What are the risks that put Hungary in such a bad position? First and foremost, the unusually high exposure to foreign-currency mortgages. Second, and lately this is becoming an increasingly important problem, the government’s policies that are perceived as antagonistic to banks. Third, the ever-looming threat of a sovereign credit rating downgrade.

It seems that this third risk, at least for the time being, has been averted. S&P didn’t downgrade Hungary’s sovereign debt to junk status. But there are still the other credit rating agencies that may, and who knows what the future holds, especially in light of the Orbán government’s latest “unorthodox” answers to the country’s economic woes.

The Hungarian government tried to lessen the foreign-currency indebtedness of the population by setting up a mortgage repayment program, but the plan appears to have backfired. The program puts the burden of the lump-sum repayment option at a fixed rate on the banks, and both Fitch and Moody’s warned that a sovereign credit rating downgrade might follow. Moreover, on November 4 the European Central Bank in a “strongly worded legal opinion” warned that the law passed by the Hungarian parliament allowing mortgages to be repaid at below market rates created “a situation that can substantially weaken the banking system’s stability and it likely to also have adverse spill-over effects on the economy.” Moreover, the European Central Bank’s opinion also contained a warning that the measure could hit the Hungarian economy by putting upward pressure on domestic interest rates. Moreover, weaker bank lending could add to the already very slow economic growth. The opinion concludes that “while at this stage it is difficult to quantify the overall macroeconomic impacts, the net short term effect for growth is likely to be negative for Hungary.”

Well, this opinion, which appeared on the website of the European Central Bank, certainly doesn’t help Hungary’s already dire economic and financial situation. Stefan Wagstyl of the Financial Times called the legal opinion “a withering response” to Hungary’s passage of the law on September 19. Moreover, the ECB was supposed to be consulted on the question because, after all, the Hungarian government’s move also affects the whole European banking system. But the government submitted the draft law to the ECB on the same day the Hungarian parliament voted the bill into law.

Today the news spread on the Internet that tomorrow’s Figyelő, a weekly dealing with economics and finance, will carry an interview with Maria Fekter, the finance minister of Austria. In this interview Fekter told the Hungarian reporter that Austria is asking the European Union to review the Hungarian mortgage law’s legality from the point of view of the European Union. The reporter suspects that Maria Fekter was aware of the opinion of the European Central Bank when she agreed to his requested interview. One must keep in mind that the hardest hit banks are Austrian owned.

But it seems that not only foreign banks are fed up with the Hungarian government. Sándor Csányi of the Hungarian OTP, the country’s largest bank, apparently had a “secret meeting” with the prime minister during which he acted as the messenger of the Bankszövetség (Association of Banks). A few weeks ago Csányi made a speech before the students and faculty of Corvinus University in which he expressed serious misgivings over the government’s handling of the forex loans. Surely, Csányi is the only one who dares raise his voice or to whom Viktor Orbán listens. After all, everybody suspects that Csányi is one of the largest financial backers of Fidesz.

If I were Csányi I would definitely say something because OTP has suffered serious losses on the Budapest Stock Exchange of late. Just today OTP was down 7.65%. Today an OTP share is worth 2,299 ft, about $10.00. Last May it was worth more than 6,000 ft a share.

And here is what has happened to the Hungarian forint in the last two years:

Just today, admittedly a major “risk off” day, the forint started out at 306.9 to the euro and by the end of the day it stood at 311.18, a change of over 1.5%. (By contrast, the Polish and Czech currencies moved about 1%.) One simply doesn’t see how the country will get out of this mess.


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I wonder when the IMF will be returning to Hungary (after requests by VO). All his international friends are replaced, resign or become sick (from VO?).


All very depressing. Especially for those of us with family and property in Orbania.
Let’s go back to talking about daft paintings!

Eva S. Balogh

Ron: “I wonder when the IMF will be returning to Hungary”
As far as I know today the IMF’s representatives arrived in Budapest. Routine visit every three or four months.
But I wouldn’t be at all surprised if at the same time the warriors for Hungary’s independence tried to get a loan from the IMF.


Eva: “As far as I know today the IMF’s representatives arrived in Budapest. Routine visit every three or four months.
But I wouldn’t be at all surprised if at the same time the warriors for Hungary’s independence tried to get a loan from the IMF.”
So, as the Fidesz is getting ready of their visits across Hungary to explain people what Fidesz is doing, how will they talk about the IMF?

Rigo Jancsi

In case the mortage law will be sacked by Strasbourg, who will have to pay the differences of the already repaid loans to the banks? There must be some rule that it cannot be the people who trusted a law issued by their government? Will the government have to pay the differences?
Last week, I was informed about the option to get part of my salary paid out onto the brand new SZÉP card, the successor of the üdölési csekk. Guess who will be issuing these cards and surely will be paid with a nice handling fee? OTP. But this little present obviously isn’t enough to appease Csányi.


Rigo : ” There must be some rule that it cannot be the people who trusted a law issued by their government? ….”
The cost will eventually be passed on to the tax payers…


So far the banks’ losses (end of October) 44 milliard forints (EUR 142,106,037.28 ) from 23,000 people, but a total of 43,000 applied and I believe they can proceed until the end of the year. If the EU will not allow this madness that means that the Hungarian people will be coughing up the whole sum for Orban’s nightmare. Let’s just for a moment suppose that the Sukoro deal because of Gyurcsany cost Hungary EUR 3,876,760.18. Well, the winner would e Orban with whopping EUR 138,000,000 loss.
I wonder if he will go on trial for that one…


Paul, on a complete tangent. We had a discussion about philisophical differences between the English speaking world and Continental Europe a while ago. Just to let you know that Melvyn Bragg did an edition of “In our time”, his programme on Radio 4 today about the subject. You can find it at:
I only hear the start of it, but it sounded quite good.


That comparison would be relevant, but the Sokoro deal did not go through, so Orban owns this mess AND the MOL purchase with nothing comparable on the Gyurcsany balance.
It cannot be emphasized enough that the greatest problem with the Orban government is not ideological, it is simply lack of competence. Eventually, no amount of nationalist/populist rhetoric will be able to cover for this fact.


Some lawyers should wake up and scare orban with plans for litigating him until the end of his life for his criminally incompetent policies.
other lawyers and economists must forge a plan to tax the people who accumulated undeserved wealth from the collapse of the kader regime.


GW, yes that is exactly the point. Orban puts people on trial for imaginary losses, imaginary incompetence, then he goes on and does real damage because he and his under-qualified team have no clue, but that is OK. Then you get people like Johnny Boy, and many hard core Fidesz supporters who fail to see the irony, and their only weapon they left is to say that Gyurcsany was a communist, so he cannot be innocent. Same time they are fail to admit that Orban was a communist himself. Not that it matters to normal people, but it does matter to them, so why are they living in this denial? Obviously they are benefitting in some way at the expense of Hungarians from the incompetence of Orban.


Slowly… or actually not that slowly, the economy is hurtling towards the tipping point, bordering on 315 HUF to the Euro today.
I always had assumed the moment of economic truth would come next year when the nabbed pension funds had been wasted on vanity projects and there was nothing left to actually keep the country up and running but I now suspect that if the regime gets to Christmas without complete meltdown then it will be some kind of (short-term) miracle.
Meanwhile, there’s a great piece of gallows humour today in
“Meanwhile, in another land…, the land of constant smiles, the National Economy Ministry talks about a “battle won”.
Well, this should be taught in schools. This kind of optimism… seeing the good amidst so much bad… it is a fabulous gift.”
You should really read the rest- it will make you laugh and simultaneously cry.


BTW, the real danger sign re about how bad the economy really is, is the amount of other stupid fluff (eg the paintings, the family law, Kover’s rantings) the regime is putting out into the public domain.
Concentrate on that as the Hungarian economy burns.


You wonder how the country can get out of this mess?
They can sell their new 15 paintings.


Thanks David. I am an avid IOT fan, often listening to programmes several time (I have quite a library on my phone for those ‘waiting an eternity for the bus’ moments).
So far, I’ve only heard a few minutes of today’s broadcast (I was busy being a dad), but I’m afraid I wasn’t exactly excited by what I heard. The sound of Bragg getting excited about philosophy causes small parts of my soul to whither and die.
But, I’ll download it and give it a chance.


“Slowly… or actually not that slowly, the economy is hurtling towards the tipping point, bordering on 315 HUF to the Euro today.”
366 against the £ as well. Not been that bad since 2007. And going up/down like a rocket/lead balloon. My redundancy ‘investment’ in solid Debreceni bricks and expanded polystyrene is melting before my eyes.
Also, the forint is over the 250 to the Swiss Franc mark again. This is usually said to be the ‘crisis point’ for the CHF mortgage situation.
PS – oneill’s link needs the final ‘)’ taking off to work.


My favourite of Ron’s links:
Madness – a loony law, but a loony law that the government itself then admits it can’t enforce.
There’s some sort of collective brain melt-down going on in Fidesz.


Today I was reading an interesting article on the Patriotism and Progress Public Policy Foundation. This was set up by, among others Gordon Bajnai.
He is said that VO needs to maintain a 1.5% growth for the budget for 2012, because if is it is below the 1.5% threshold the budget would become unconstitutional (under the new constitution).
If this is true than VO shot himself in the foot.
Btw it is in Hungarian, so GT is necessary for some of us.


The same website contain also an overview of income and expense for the period 1995-2012 in graphic form. Unfortunately, it is only in Hungarian.
You need to play around in order to get a feel for it. But it shows some interesting trends.