“Deja vu all over again” in struggling Hungary?
Hungary has negotiated a $25 billion economic rescue package with the IMF, the EU and the World Bank. What else is new? As that non-Hungarian philosopher of gamesmanship Yogi Berra put it, it’s “like déjà vu all over again”.
Consider the words of historian Paul Lendvai who wrote: “Its economy in tatters, Hungary accepts a loan of 250 million gold crowns.” “Fiscal stability was restored, a currency reform was introduced…and after a modest upswing the value of industrial production stood 12 percent higher…”
The date? The 1920s. The lender: The League of Nations. Only the details have changed.
Hungary seems never to have encountered a global financial crisis it didn’t jump into head first.
If you want to see pictures of banknotes discarded on the street as trash (one is widely available on the Web) just dig in the archives for photos from post-World War Two Budapest.
Inflation in Zimbabwe has hit astounding heights of 230 million percent, but in 1946 prices in Hungary rose by more than 40 quadrillion percent a month.
Over the past century, Hungary has had three different currencies — the korona, the pengo and the forint, each introduced when the previous tanked.
The perky forint — the same currency that is in a bit of a pickle today — made its debut in 1946 at an exchange rate of one forint equal to 400 octillion pengo — a number that was essentially more than all the pengo then in circulation.
Hungary is a member of the European Union and NATO and its economy is substantial. One of Hungary’s local banks, OTP, is a regional heavyweight. The Audi car plant in Gyor, western Hungary, churns out engines and the hot Audi TT sports car.
But there is cause for concern. Why has Hungary been hit harder than most, putting it in the company of Pakistan, Ukraine and Belarus which have also been talking to the IMF.
Hungary’s external debt amounted to 89.9 billion euros, or 93.8 percent of gross domestic product (GDP), in the second quarter of 2008. This is not good at a time when banks are reluctant to lend to each other, let alone to a central European country with a history of currency collapse.
A good part of Hungary’s debt is Swiss franc or euro currency loans taken out to buy property or cars. As investors pull money out of Hungary, the forint declines in value and repaying those loans becomes harder.
“What I am paying a month all of a sudden rose above 110,000 forints ($532.80) from 90,000 (forints), so we need to restructure our spending,” a businessman with a mortgage in Swiss francs said.
At the same time, Hungary has gone from golden child of emerging Europe after communism collapsed to laggard in the race to adopt the euro. With chronic budget deficits, including a whopper in 2006 that was triple the EU guideline, Hungary’s joining date has been postponed again and again.
In good times, world leaders talk about globalisation and mutual cooperation. In bad times, everyone tends to scramble for cover.
Hungary’s rescue package is substantial and, as Yogi Berra said, “It ain’t over till it’s over.” But if it is, Hungarians have been there before — and know how to sweep the banknotes into the gutter.