Flash Comment: Hungary: more “unwise” comments from officials

Източник: Danske Bank

CEE currencies are again selling sharply on the back of yet more unwise comments from Hungarian officials. This time it was Prime Minister Orban’s spokesman, Peter Szijjarto, who has spooked the markets further by re-enforcing Lajos Kosa’s comments yesterday that Hungary is near a Greek-style scenario. Furthermore, the PM’s spokesman blamed the outgoing Socialist government for the problems and used the D-word i.e. default. He also criticised the Socialist government for having gone to the IMF.

The comments made over the past 24 hours are highly concerning as they not only increase fears in the markets over a possible Hungarian default, but also clearly demonstrate that the Hungarian government has very little understanding of how the financial markets actually work. Furthermore, by so strongly criticising the previous government for going to the IMF, one can only start to speculate as to whether the Hungarian government wants to renege on the country’s standby agreement with the IMF and EU. Note in that connection that the Hungarian Prime Minister Orban recently said that he did not want the EU and IMF to dictate economic policy to Hungary. With this in mind, Mr. Szijjarto’s comments regarding the IMF are even more troubling.

Overall, the sharp sell-off in the Hungarian markets over the past two days is hardly surprising given the above. If one wanted to ensure financial and economic stability one should not compare the situation with Greece, talk about default and (indirectly) call into question the IMF standby agreement. The fact remains that Hungary most likely would have defaulted had the country not gone to the IMF and EU for an emergency loan in 2008.

For now, we advise our clients to show utmost caution on the Hungarian markets as there is a clear risk that this could escalate further. Furthermore, the “story” is now having a serious negative impact on the wider European markets with the CEE currencies, euro and European fixed income markets coming under pressure