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Quis custodiet ipsos custodes?

Socialist games and Hungary crepuscle

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Hungary, Trying to Calm Markets

BUDAPEST—Hungary’s new cabinet huddled in an emergency session over the weekend to devise an economic plan aimed at restoring confidence in the nation’s creditworthiness, as the government backtracked on officials’ earlier comments that the country could default on its debts.

Mihály Varga, a senior official who acts as the prime minister’s chief of staff, vowed that Hungary would stick to strict government-spending limits set in the country’s agreements with the International Monetary Fund and the European Union. He said Hungary wasn’t at any risk of default.

“The government aspires to regain credibility,” Mr. Varga said Saturday at a news conference called after remarks by other politicians about the state of Hungarian finances spooked investors, causing the Hungarian currency to plunge in value and dragging down the euro. In early Asian trading Monday, the euro weakened further.

The government said it would formulate its action plan by Monday, when it is expected to brief visiting officials from the IMF and EU. It was unclear exactly when details would be announced to the public.

Friday’s punishing market reaction showed how little tolerance investors have for any move away from budget austerity in the wake of the Greek crisis. It was followed by phone calls from European officials warning that Hungary needed to get its fiscal house in order, people familiar with the situation said.

The combination appeared to have prompted a sharp reversal — in rhetoric, at least — by the government, which came to power after the right-leaning Fidesz party won a lopsided victory in April elections after a populist campaign calling, among other things, for tax cuts.

Prime Minister Viktor Orbán’s press aide, whose comments that Hungary could miss its deficit-reduction targets and would need to work to avoid following in Greece’s footsteps sent markets reeling Friday, made an about-face Sunday. He said the administration would cut government bureaucracy and aim to stay within the IMF’s budget restrictions.

“The government has created an artificial crisis,” said Tibor Szanyi, a long-serving member of parliament from the opposition Socialists who represents a Budapest constituency. “They wanted to exaggerate the situation” for political ends, Mr. Szanyi said. “It is really dangerous to do that in the heart of Europe.”

Politicians and analysts in Budapest said recent pessimistic comments by Fidesz party officials may have had a dual political objective: first, to test the waters and see if lenders would permit more relaxed fiscal policies. And, if not, to provide an excuse to back away from campaign promises and stick to tight budget limits.

In 2008, the Hungarian government, burdened with heavy debt, was unable to borrow in capital markets amid the global credit crunch. It turned to the IMF and EU for a bailout, and agreed to stringent limits on government spending. Under the deal, this year’s budget-deficit target was set at 3.8% of gross domestic product.

In April, after the Fidesz party victory, Mr. Orbán, who is now prime minister, said Hungary would take a tough stance in trying to negotiate new terms with the IMF and EU. “We won’t listen to dictates but aim to have an economic program which wins them over as our partners,” he said at the time.

In the months that followed, Mr. Orbán’s Fidesz party has made repeated accusations that the previous government understated the likely size of this year’s budget deficit and that undisclosed fiscal skeletons lurked in the closet. Some hinted the deficit could end up being as large as 7% or 7.5% of GDP.

One international official familiar with the government’s budget situation and with its dealings with the IMF and EU said such figures are “completely misleading.” The official said that if Mr. Orban doesn’t take some steps to rein in costs, the deficit could be slightly above 3.8% of GDP, “but nothing dramatic.” The official added that “so far there is nothing to back the previous statements” about a ballooning deficit, and the program with the IMF and EU “is so far on track.” More on The Wall Street Journal.

World markets tumble on fears over Hungary

BANGKOK — World stock markets tumbled Monday, dragged down by weak U.S. employment figures and fresh fears that Europe’s debt crisis is spreading to Hungary.

Oil was also buffeted, falling to near $70 a barrel, while the dollar fell against the yen and gained versus the euro. Wall Street was poised to open lower. Dow futures shed 66 points, or 0.7 percent, to 9,880 while the broader Standard & Poor’s 500 futures dropped 6.6 points, or 0.6 percent to 1,059.60. 

Selling was sparked in Asia on fears that Europe’s debt problems could spread after Hungarian officials said last week the nation was at risk of a Greek-style fiscal crisis.

The comments shocked investors, pushing the euro to a fresh four-year low against the dollar. Hungary is part of the European Union, but keeps its national currency – the forint, which dropped around 5 percent last week.

“The problem seems like a cancerous thing – it’s spreading from smaller country to smaller country, and many people are afraid that it will spread to a big country like France or Germany, although that’s unlikely,” said Jackson Wong, vice president at Tanrich Securities, in Hong Kong.

“We don’t have major good news on the horizon. We still have crises down the road.”

Major European stock indexes were lower in early trading. The FTSE 100 index of leading British shares slid 85.28, or 1.67 percent, to 5,040.60 while Germany’s DAX sank 79.26 points, or 1.3 percent, to 5,859.75. The CAC-40 in France stood at 3,387.74 points, lower by 2 percent or 67.11 points.

Asian indexes closed sharply lower Monday: Japan’s benchmark Nikkei 225 stock plunged 380.39 points, down 3.8 percent, to 9,520.80 with investors also cautious before Japan’s new leader, Naoto Kan, forms his Cabinet on Tuesday.

South Korea’s Kospi lost 1.6 percent to 1,637.97 while Australia’s S&P/ASX 200 was down 2.8 percent at 4,325.9. Hong Kong’s Hang Seng dropped 2 percent to 19,378.15. Benchmarks in mainland China, Singapore and Taiwan also slid. More on  The Washington Post.

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Written by Theophyle

June 7, 2010 at 11:41 am

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