Deputy central bank chairman Júlia Király’s personal story of the 2008 Hungarian financial crisis

I just finished reading a fascinating book by Júlia Király, deputy chairman of the Hungarian Central Bank between 2007 and 2013, on her recollections and analysis of the 2008 economic crisis in Hungary. The book’s title is A tornádó oldalszele: Szubjektív válságtörténet, 2007-2013. The title needs some explanation. Before the crisis reached Hungary, Király was convinced that Hungary would receive only the side wind or half wind (or, to use a sailing term, beam reach) of the approaching tornado. As we know, she was mistaken. Hungary was badly hit, with consequences not just economic but also political. To use another sailing term, the country ended up “in irons,” meaning heading into the wind, stalled, and unable to maneuver.

The structure of the book is most unusual; it is basically two books in one. The first half is Király’s personal recollections of the six years she spent in the Hungarian National Bank. The second half is a series of lectures on the workings of the central bank, a glossary of important terms, and an account of events necessary to fully understand the main story. Király and her editor, Zoltán Farkas, who is responsible for the coverage of economics and finance in HVG, decided to turn to this unusual format, which was first used in Hungary by Péter Esterházy, the star of modern Hungarian literature, in Termelési regény / Production Novel (1984). The first half of Esterházy’s novel recounts the daily life of a factory. Its numbered footnotes lead the reader to comments by the “master’s secretary” on the life of the writer. One would think that such a division would make reading the book cumbersome, but this is not at all the case. At least in the e-book version, moving between the terms in bold and the explanations in the second half of the book is easy. So is accessing the more than 550 footnotes, which are a great deal more informative than one normally expects.

In March 2007 Zsigmond Járai, a Fidesz appointee, ended his six-year tenure, and the socialist-liberal government of Ferenc Gyurcsány was looking for a new chairman, preferably a more capable and less confrontational one than Járai. Two names eventually surfaced as likely contenders, Ferenc Karvalits and András Simor, and both kept their eyes on Júlia Király for the deputy post. In the end, Simor became chairman, and Király and Karvalits served as his deputies. The first half of the book is mostly about the work of these three people, who were responsible for saving the country from financial ruin in 2008. Because in 2008 the threat of insolvency, unlike in 2010 when the new Orbán government tried to convince the world of Hungary’s imminent financial collapse, was for real.

At the time of the job offer Júlia Király was in the middle of a research project which she was sorry to abandon, but a friend of hers with years of experience in the central bank cheered her up by saying that she can look forward to six boring years when she will have plenty of time to work on her project on the side. Shortly after they began their work, Karvalits asked Simor what they would be doing in the next year. The new chairman thought they might be able to get inflation down, which in March 2007 was 9%. By the end of the year it had fallen to 7.5%.

Király received an excellent piece of advice from an old high-school friend who in the interim became a well-known journalist and writer: “Write down everything! You must remember everything!” Thank God she did because some of the important documents that were originally intended to remain unavailable to the public for 10 years have since have been reclassified to remain top secret for 30 years. She also saved her calendar, which was crowded with meetings, starting at 8 o’clock in the morning and ending at 7 o’clock in the evening.

The book is chock full of information on many topics, and of course I cannot begin to give them the attention they deserve. I will concentrate on the crucial period between September 15, 2008, when Lehman Brothers filed for bankruptcy, and the end of the year when the National Bank could breathe a sigh of relief. The country had survived the crisis.

Although there were many signs of the gathering storm, the scope of the problem was totally unexpected. Then came October 9, when Király was in Frankfurt for one of the regular committee meetings of the European Central Bank. The plan was that Simor would join her the next day and that the two of them would fly to Washington for an IMF general meeting. While in the ECB meeting, she got word that nobody was buying Hungarian government bonds. BUX, the Budapest stock exchange, fell so rapidly that trading had to be suspended, and the forint plummeted. A state of “sudden stop” occurred, which means swift reversals of international capital flows and declines in production and consumption. It looked as if, by December, the Hungarian government would be unable to meet its payroll.

Plans changed. Simor had to stay in Budapest. Király, with a deputy undersecretary of the ministry of finance, went to Washington. And the Hungarian government began negotiating for a loan from the IMF. A “crisis staff” was created, which included Prime Minister Ferenc Gyurcsány; Finance Minister János Veres; Álmos Kovács, assistant undersecretary in the finance ministry; Gordon Bajnai, who served at this point as minister in charge of local government and land development; Sándor Csányi, president of OTP, Hungary’s largest bank; and Simor, Karvalits, and Király, who represented the central bank. They met almost every night for one or two hours.

Meanwhile, in the central bank itself, a group of “rescuers” was appointed, 20-25 people who were supposed to come up with ideas and master plans to address the crisis. They worked day and night. Simor announced that he is no longer the chairman of a bank but “a general because we are in a state of war.”

Miraculously, by the end of October, Hungary was out of danger. On October 23, The Economist noted that “the Hungarian central bank did exceptionally well,” which was naturally music to their ears.

This short description of the immediate crisis cannot of course do justice to this book. It must be read, and I do hope that sometime in the near future there will be an English translation of it. On the cover of the book Péter Nádas, another great name in contemporary Hungarian literature, wrote: “I read it holding my breath. It is truly dramatic. Please keep writing. Go and investigate further.” Nádas is not exaggerating. It is a book that everybody who is interested in the workings of central banks in general and the Hungarian Central Bank in particular should read. It is also an important first-hand document of crisis management.

I have been an admirer of Júlia Király ever since I first listened to an interview with her some time between 2002 and 2007 on Zsófia Mihancsik’s Sunday-night program Hétzáró (Week Closing) on Klub Rádió. She is unpretentious; even as deputy chairman of the central bank she bicycled to work. She is witty and has spunk. And she must be an excellent teacher because the second half of the book, in which she explains difficult economic concepts in simple terms, is beautifully crafted. Her book cannot be properly summarized because its most important ingredient, Júlia Király, is missing from the text.

♦ ♦ ♦

Júlia Király’s distinguished career began in the 1980s in the Hungarian Statistical Office. Before becoming deputy chairman of the Hungarian National Bank, she taught at her alma mater (Corvinus), was an adviser to György Surányi, chairman of the National Bank (1990-1991), and even served as an adviser to Fidesz on economic matters, especially on pension policies (1990-1992). She was on the board on several banks and in 2002 and 2003 was CEO of Postabank. As such, she was in charge of the bank’s privatization.

It was in 2007 that Király was appointed one of the two deputy chairmen of the Hungarian National Bank for a six-year term. Her term would have expired on July 4, 2013, but after the appointment of György Matolcsy as central bank chairman in March 2013, she decided not to wait and quit on April 8. In her opinion, under Matolcsy’s leadership, the Hungarian National Bank was heading in the wrong direction and, as she said, his policies “endanger the central bank’s prestige acquired over many years at home and abroad.” Her decision became international news. The very day of the announcement The Economist published an article on the subject with the title “Julia Király quits with a j’accuse.” Currently, Király is a professor at the International Business School in Budapest and an independent member of the board of the Belgian KBC Group.

Hungarian Spectrum had the privilege of publishing an article of hers in 2015 titled “The not surprising economic slowdown.”

July 20, 2019