A Hungarian Folly?
Unless you are completely in ostriche mode at the moment you will probably have noticed that financial markets are in somewhat of a rout. Equities all over the world are getting a sound a beating and yields on the short term treasury bills are scraping the floor at a bit over 2% which suggests that Ben is not finished yet although yields on 10 year notes recovered a smidge today (i.e. prices fell). However, this is not a post about yields on US treasuries as interesting as this topic no doubt is.
In stead I am going to home in on Hungary and the ongoing bind with which the Hungarian central bank finds itself in as it is unable to lower rates to accomodate the ongoing recession in fear of what might happen to the Forint. And believe me, I am certain that the punters are ready to enlist in the execution sqaudron should the central bank choose to bite the bullit; it would almost be irrational not to I guess. As for general market sentiment Eastern European stocks continued their decline today and there seems to be no sign of relief as we move forward. Note particularly in passing that Austrian bank stocks seem to be taking the hit in Eastern Europe especially hard which is a testament to their high exposure to the region. Yet what I really want to share with you at this point is how reports showed today how the European Union is weighing in on the whole debacle of a macreconomy with which Hungary is equipped at the moment ...
The European Union warned Hungary that slower-than-forecast economic growth after this year may hurt the nation's deficit-cutting plans and told the government to take further measures if needed. Hungarian economic growth was 0.9 percent in the third quarter, the slowest annual rate in the EU. The government expects expansion to accelerate to 2.8 percent this year and 4 percent in 2009.
Ok, point taken and the gist of the message is without a doubt clear. Hell will freeze over before Hungary manages to meet any of those 'road-map' objectives which have been drawn out in cooperation with the EU authorities in order to ensure that Hungary stays of a sustainable economic path. Also it should be emphasised I think that Prime Minister Ferenc Gyurcsany has set in motion a lot of initiatives to reign in the budget deficit if anything then to show good faith towards the bureaucrats in Brussels and Strasbourg. I sure that all this from the EU is well intended but my biggest gripe with all this is the timing and thus what appears to be the utter incomprehension of the underlying problem. Now, I don't want to take sides here but I do want to express my discomfort with what can only be described as unprofessionalism from the part of the European Union and as such as Edward puts it ...
I think this point is absolutely obvious, but the way the Commission is expressing itself seems to indicate that they are completely out of tounch with the real tightrope Hungary is being forced to walk at the moment.
This is exactly the point I feel and I think we need to realize that in the current delicate point in time Hungary alongside Romania are first in line and may very well be the first to suffer a real macroeconomic fallout from this. Ok, so I am just being a Thursday morning rant here? Perhaps. In any case you could have asked what the EU should say at all about the current situation in Hungary. My main niggle as emphasised above is the simplification of the Hungarian position in the current climate and not so much the fact that the EU voices de-facto concerns over a large budget deficit.