Today was again a crowded day. Although the forint weakened a bit already yesterday, by this morning its fall was rapid and spectacular. At one point one had to pay more than 321 forints for one euro and even now it is still over 320. This is an all-time low. The Hungarian forint hasn’t been so weak since the introduction of the euro as the common currency of the eurozone countries.
How does the Ministry of National Economy explain the sorry state of the Hungarian currency? The ministry’s answer, as one is accustomed to by now, is simple. The only reason for the Hungarian forint’s rapid weakening is the uncertainty surrounding the date of the negotiations between the IMF/EU delegation and Hungary over a loan that would bolster Hungary’s financial well being.
Hungary has also been having serious difficulties selling its bonds. On December 29 several financial papers and television stations reported that the Hungarian government had to abandon part of a debt auction. Hungary raised less than half as much as planned.
In the new year the trend has continued. Hungary was either unable to sell its bonds or, if it managed, the yields were extraordinarily high. Here is an example. The yield on 10-year bonds rose to 10.3% yesterday, and even the three-month treasury bill’s yield was 7.67%. Meanwhile credit default swaps have gone sky high, with the 5-year spread pricing in a probability of default north of 36%. So, surely, there is a general distrust of the Hungarian government’s economic policies and the country’s financial well being that is causing this situation. The weakening of the forint is part and parcel of this economic climate.
At the same time Tamás Fellegi, who by now has to occupy himself solely with laying the groundwork for the stalled negotiations with the IMF and the European Union, most likely has difficulty convincing the leaders of the IMF or the EU to start even informal talks with him. He managed to secure an appointment with some of the more important members of the IMF on January 11. According to the Hungarian papers, he will even have the opportunity to talk with Christine Lagarde. But as of yesterday he still hadn’t managed to convince the more important politicians of the European Union to give him an appointment. It is obvious that the more difficult negotiating partner will be the European Commission.
Fellegi also said today in an interview in Figyelő that he would like to ask for the help of the French, German, and Austrian governments in his quest for an understanding with members of the European Commission. However, I have my doubts about Fellegi’s success in Paris, Berlin, or Vienna.
Let’s start with the French government. The spokesman of the French Foreign Ministry announced on January 2 that the French government “will support the European Commission in its effort to assess the details of the new Hungarian constitution.” Moreover, the French government will also adhere to any sanctions the Commission comes up with against the Hungarian government. The message of French Foreign Minister Alain Juppé concerning the lawfulness of the new Hungarian constitution was “categorically rejected” by the Hungarian Foreign Ministry the very next day. So, if I were Fellegi, I wouldn’t be too optimistic about French assistance.
French Foreign Minister Alain Juppé
As for Germany, the situation there is no better. The deputy spokesman for the government announced today that “the German government welcomes the European Union’s decision to investigate the new Hungarian constitution.” Therefore it is most unlikely that Fellegi could find assistance in advancing the Hungarian cause in Berlin.
As for Austria, I think Fellegi’s attempts in Vienna are pretty hopeless. Not just because the Austrian government has been mighty upset over the difficulties Austrian banks have been encountering in Hungary but also because it was only yesterday that Foreign Minister Michael Spindeleggert publicly criticized the Hungarian constitution and disclosed that he had talked to János Martonyi about the Austrian government’s objections to certain aspects of the new constitution.
Austrian Foreign Minister Spindeleggert
Although in the past there has been a lot of criticism of the European Union as an organization that is incapable of keeping its house in order as far as the internal affairs of the member states are concerned, it seems now that the European Commission means business. According to observers in Brussels, Hungary could face a bailout freeze and legal action unless it abandons some of the cornerstones of Viktor Orbán’s “revolution.” Moreover, it seems that the Commission will not be satisfied with a mere change in the two cardinal laws mentioned by José Manuel Barroso: the law on financial stability and the law on the central bank. The final text of the new constitution arrived in Brussels and experts are going through it with a fine-toothed comb. Thus the whole constitution and the cardinal laws are under scrutiny. Hungary’s constitution and its cardinal laws will be the topic of discussion at the very first meeting of the European Commission on January 11, a week from now.
But that’s not all. On January 25 the sorry state of the Hungarian media, including the case of Klubrádió, will be the topic of conversation. Back in October a work-group was set up by the Commission to concentrate on questions of the Hungarian media. The Hungarian media situation since then has only deteriorated. The public television coverage of news is greatly slanted in favor of the government and outright deception was discovered when the images of certain people appearing in the background of a picture were blurred out at the direction of the news editors. Since then there has been a long hunger strike by two employees of the state television station. And thousands demonstrated for the freedom of the Hungarian media in front of the parliament building.
I wrote about the case of Klubrádió about a month ago. The outcry at home spread abroad and got as far as the European Commission in Brussels. I think that the employees and listeners of Klubrádió are surprised and grateful. And perhaps somewhat more hopeful about the future of their station than they were a few days ago.
But let’s return just a bit to Tamás Fellegi’s trip to Washington on January 11, the same day the European Commission will take up the Hungarian constitution and the cardinal laws. From what Fellegi had to say about his goal in Washington, I got the distinct impression that Viktor Orbán hasn’t moved an inch from his original position on the subject. He refuses to negotiate about a “stand-by credit line,” the only one Hungary could possibly get from the IMF. He is still talking about “precautionary credit” without any oversight by the IMF/EU of Hungary’s economy. Admittedly, he did say that Hungary is “ready to accept the suggestions of the international organizations” but I very much doubt that Viktor Orbán would be ready to scrap his whole constitution, the magnum opus of his life, for the sake of a stand-by credit line. Fellegi mysteriously added that he is envisaging “a compromise between a precautionary and a stand-by credit line.” The problem is that there is nothing in between the two.