Remember the storm-in-a-teacup Hungary crisis, back in June? Global markets all tumbled on fears about Hungarian austerity, of all things. It was all a bit weird for two reasons: firstly, the crisis was caused by remarks from a brand-new and wholly inexperienced incoming government, which had yet to find its legs or implement any policies at all. And secondly, Hungary is not a part of the eurozone, so there was no chance of a broader euro crisis resulting from what went on there: in the worst case scenario, the forint would simply weaken. The obvious conclusion was that markets were just looking for any excuse to plunge.
Today, Hungary blew up all over again, the forint fell by more than 2%, and debt spreads widened out to their early-June levels, as austerity talks with the IMF fell apart. This was, on its face, a more credible crisis: it was caused by a real failure rather than just talk. But markets outside Hungary didn’t seem to notice, and neither the forint nor Hungarian spreads have yet found themselves at noticeably worse levels than they saw in June.
In June, I described the Hungary crisis as “just another one of those random triggers which might normally have been easily ignored, but which was simply the excuse that jittery and volatile markets needed to sell off sharply”. So I’m not surprised that markets were sanguine today: lightning rarely strikes twice in the same spot.
I wonder how people are feeling at the IMF today. Gordon Fairclough reports that “one way the IMF can encourage compliance is to suspend talks with borrowers and allow a punishing market reaction” — but it seems that Hungary can easily weather this particular punishment, so long as it doesn’t get any worse.
So all of this is good news, I think: global markets are less prone to panic, and even Hungarian markets seem to have made peace with the idea that there might not be an IMF backstop for the time being. Maybe the “new normal” is, slowly, becoming normal.