Eldritch
06-05-2010, 12:13 AM
Hungary raises specter of Greece
Krisztina Than
BUDAPEST
Hungary's markets tumbled on Friday on confusing comments from the new government on the state of public finances, prompting the central bank to rush to reassure investors the country's budget was sustainable.
Markets were spooked by comments from the prime minister's spokesman that he supported the view his country had only a slim chance of avoiding a Greek-style debt crisis, although he said his government would act swiftly to avoid the Greek path.
The forint plunged over 2 percent versus the euro to a new one-year low at one point, while five-year credit default swaps (CDS) jumped, as investors were shocked by the government's comments and urged clarity on its plans.
The euro slumped against dollar on fears that Hungary could become next casualty in the European debt crisis.
The new Hungarian government, which was sworn in less than a week ago, said it would soon announce an action plan to tackle economic problems, after it publishes the figures about the "true" state of the 2010 budget this coming weekend or early next week.
The central bank said external and internal balances had improved and although the deficit this year was expected at 4.5 percent of GDP, above the target of 3.8 percent, it was sustainable and Hungary had a current account surplus.
"The country's current account shows a surplus and the external financing capacity is expected to remain positive in the coming two years," the bank said in a statement.
"Although the fiscal developments show some slippage compared to the budget law, fiscal tensions stemming from the accumulated debt of state-owned enterprises do not endanger the sustainability of government finances," the bank added.
The center-right government won elections in April by a landslide, winning a two-thirds majority of seats and ousting the Socialists. It has said it wanted to boost growth via tax cuts and economic stimulus measures.
On Thursday, the ruling Fidesz party's vice chairman Lajos Kosa was cited as saying by news website napi.hu that it had found public finances in a much worse shape than previously expected and there was only a slim chance of avoiding a Greek-style scenario.
When asked about those comments, Prime Minister Viktor Orban's spokesman Peter Szijjarto told a news conference:
"It was (former Socialist) Prime Minister Ferenc Gyurcsany who spoke about a default. Moreover, he proudly said that Hungary was close to default, he said that a year and a half ago ... and then he was proud that he could only save Hungary from default by taking the IMF loan."
"From this aspect I do not think (Kosa's comments) are exaggerated at all."
Szijjarto also told the news conference that the previous government falsified economic data.
"In Hungary the previous government falsified data. In Greece, they also falsified data. In Greece the moment of truth has arrived. Hungary is still before that," Szijjarto said.
"This is exactly what we want to avoid, and this government is ready to avoid the path that Greece took. After realizing what reality is, we will not hesitate to act," he said.
Socialist party parliamentary group leader Attila Mesterhazy said Hungary was not close to default.
Szijjarto said the austerity measures and tax hikes which the Socialist administration tried in the past had failed.
He said tax cuts would not be delayed even in the face of a higher budget deficit. It was not clear how that could square with bringing the deficit under control.
The previous government regained markets' trust by containing the deficit at 4 percent of GDP last year with deep spending cuts, after Hungary resorted to IMF and EU financing in October 2008 to avert meltdown.
The country has been financing itself from markets again this year and has not drawn on any IMF funds so far in 2010.
Full story here. (http://www.reuters.com/article/ousivMolt/idUSTRE6535OF20100604)
Krisztina Than
BUDAPEST
Hungary's markets tumbled on Friday on confusing comments from the new government on the state of public finances, prompting the central bank to rush to reassure investors the country's budget was sustainable.
Markets were spooked by comments from the prime minister's spokesman that he supported the view his country had only a slim chance of avoiding a Greek-style debt crisis, although he said his government would act swiftly to avoid the Greek path.
The forint plunged over 2 percent versus the euro to a new one-year low at one point, while five-year credit default swaps (CDS) jumped, as investors were shocked by the government's comments and urged clarity on its plans.
The euro slumped against dollar on fears that Hungary could become next casualty in the European debt crisis.
The new Hungarian government, which was sworn in less than a week ago, said it would soon announce an action plan to tackle economic problems, after it publishes the figures about the "true" state of the 2010 budget this coming weekend or early next week.
The central bank said external and internal balances had improved and although the deficit this year was expected at 4.5 percent of GDP, above the target of 3.8 percent, it was sustainable and Hungary had a current account surplus.
"The country's current account shows a surplus and the external financing capacity is expected to remain positive in the coming two years," the bank said in a statement.
"Although the fiscal developments show some slippage compared to the budget law, fiscal tensions stemming from the accumulated debt of state-owned enterprises do not endanger the sustainability of government finances," the bank added.
The center-right government won elections in April by a landslide, winning a two-thirds majority of seats and ousting the Socialists. It has said it wanted to boost growth via tax cuts and economic stimulus measures.
On Thursday, the ruling Fidesz party's vice chairman Lajos Kosa was cited as saying by news website napi.hu that it had found public finances in a much worse shape than previously expected and there was only a slim chance of avoiding a Greek-style scenario.
When asked about those comments, Prime Minister Viktor Orban's spokesman Peter Szijjarto told a news conference:
"It was (former Socialist) Prime Minister Ferenc Gyurcsany who spoke about a default. Moreover, he proudly said that Hungary was close to default, he said that a year and a half ago ... and then he was proud that he could only save Hungary from default by taking the IMF loan."
"From this aspect I do not think (Kosa's comments) are exaggerated at all."
Szijjarto also told the news conference that the previous government falsified economic data.
"In Hungary the previous government falsified data. In Greece, they also falsified data. In Greece the moment of truth has arrived. Hungary is still before that," Szijjarto said.
"This is exactly what we want to avoid, and this government is ready to avoid the path that Greece took. After realizing what reality is, we will not hesitate to act," he said.
Socialist party parliamentary group leader Attila Mesterhazy said Hungary was not close to default.
Szijjarto said the austerity measures and tax hikes which the Socialist administration tried in the past had failed.
He said tax cuts would not be delayed even in the face of a higher budget deficit. It was not clear how that could square with bringing the deficit under control.
The previous government regained markets' trust by containing the deficit at 4 percent of GDP last year with deep spending cuts, after Hungary resorted to IMF and EU financing in October 2008 to avert meltdown.
The country has been financing itself from markets again this year and has not drawn on any IMF funds so far in 2010.
Full story here. (http://www.reuters.com/article/ousivMolt/idUSTRE6535OF20100604)