Thursday, January 19, 2012

Hungary—well that was fast

This is what a 'thoughtful' observer in the mainstream press was saying about Hungary only a week ago.  The Prime Minister is called an "authoritarian populist."  (Oh horror!)  It warned of a default.  It warned of a breakdown in talks between the IMF and the government.

I would not be the least surprised that the bondholders are worried.  After all, there are almost 200 nations that could default any day now.

Jan. 11, 2012, 12:01 a.m. EST
Hungary won’t be last to make bondholders pay
Commentary: Markets won’t always get what they want

By Matthew Lynn

LONDON (MarketWatch) — Much like Greece, Hungary was one of those small, slightly peripheral countries that most people in the financial markets probably thought they could get through a career without ever worrying about very much.

With a population of slightly less than 10 million, and with a total gross domestic product of less than $200 billion — only half the market value of Apple Inc. — it hardly had much of a claim on the attention of investors.

But right now, Hungary is could be the epicenter of the latest next financial storm.

The country is teetering on the edge of bankruptcy. Its authoritarian populist Prime Minister Viktor Orban is refusing to play ball with the International Monetary Fund. Bond yields are soaring and credit is drying up. The country may, in the next few weeks, become the first major nation of this ongoing sovereign crisis to default — and that could trigger a wave of massive, perhaps even crippling losses across the European and indeed global banking system.

Hungary by itself doesn’t matter very much to the markets. It is neither big enough nor rich enough. But it is a foretaste of things to come. The markets keep demanding more and more austerity. Eventually political leaders are going to kick back against that. It might be the first major country to default on its debts, but it won’t be the last, and that means there is a lot more pain ahead for the markets.

The Hungarian economy is a mess. Pumped up by lots of cheap lending during the credit bubble — and in particular by lots of cheap mortgages denominated either in euros or Swiss francs — it hit a brick wall after the credit crunch. It suffered one of the deepest recessions anywhere in 2008 and has struggled to recover since. A mountain of foreign debt has started to catch up with it. The ratings agencies have steadily cuts its status down to junk, and bond yields have soared. Ten-year yields are now up around 10% and the stock market has been hammered.

It is quite clear what the markets want. After a decade-long debt-fueled bubble, they are looking to the IMF to come in and clear up the mess, and make sure foreign investors don’t suffer any losses. If that means a harsh austerity regime for the ordinary people, so it goes.

The Hungarians, however, have other ideas. The PM Viktor Orban is refusing to play ball with the IMF. Talks over a fresh bailout have repeatedly broken down. The main issue is the independence of the central bank — the government wants to put it under much tighter political control. But this is also about austerity. The country now looks set for a lurch to the authoritarian right and may well default in the process.

Orban is a fairly unpleasant politician, and potentially another Vladimir Putin in the making. That said, it is hard not to have some sympathy with the Hungarian position.

After all, the standard IMF medicine has hardly worked out very well in other countries. The Greek economy is still contracting at more than 5% annually and shows no sign of recovering any time soon. Ireland is slipping back into recession. If that is the price you have to pay for continued support from the IMF and for appeasing the bond markets, it shouldn’t be any great surprise if many Hungarians decide they are better off without it. more
So only one week later, we have that ogre Prime Minister Orban essentially saying it was all just one huge mistake and the Hungary will do everything possible to cooperate.  That bankster 'splainin' sure works wonders.  Turns out the only leaders who will tell the IMF to get lost on any consistent basis are from Latin America.  And Orban is a LONG way from being Nestor Kirchner.

EUROPEAN UNION | 18.01.2012
Hungary's Orban says problems with the EU can be resolved swiftly

Hungarian Prime Minister Viktor Orban has told EU lawmakers he will modify controversial laws that are the subject of legal action against Budapest launched by the European Commission.

EU concerns over Hungary's laws on its central bank and judiciary can be resolved swiftly, Prime Minister Viktor Orban said on Wednesday in an effort to avert legal action by Brussels and win much-needed financial aid from the EU and the International Monetary Fund (IMF).

Orban told the European Parliament in Strasbourg that fixing the issues that led the bloc's executive to launch legal proceedings against his country "will not pose a problem."

The Prime Minister's Fidesz party has faced criticism for tightening control over public institutions including the judiciary, central bank and data protection agency, as well as the media.

Orban urged the EU to take into account that his country is undergoing a "serious transformation" after being on the brink of collapse two years ago.

"What's happening in our country is a very exciting process of renewal," Orban told the Parliament. "It is absolutely understandable that there are debates in conjunction with that." He added he hoped talks next week with EU executive chief Jose Manuel Barroso would yield quick results. more

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