"Saying that the situation is the same for all central and eastern European states, I don't see that......you cannot compare the dire situation in Hungary with that of other countries."
Angela Merkel, Brussels, Sunday
"Happy families are all alike; every unhappy family is unhappy in its own way"
Tolstoy
In Europe, leaders rejected pleas for a comprehensive rescue plan for troubled East European economies, promising instead to provide “case-by-case” support. That means a slow dribble of funds, with no chance of reversing the downward spiral.
Paul Krugman
Bank regulators from Bulgaria, the Czech Republic, Poland, Romania and Slovakia met today and issued a joint statement, ostensibly to reduce the some of the impact of what they term "alarmist comments" from the Austrian government about how the regional banking system is now in such a precarious state that it requires urgent action at EU level to prevent meltdown. The Austrian government are, of course, concerned about the impact of any meltdown on their own banking system. The result of this "reassuring statement" can be seen in the chart below (10 years, HUF vs Euro).
Within minutes of the joint statement Hungary's currency plummeted to an all-time low against the euro and to a 6.5-yr low versus the US dollar. In fact the HUF rapidly depreciated to 312 per euro from 307.50 before climbing back in later trading to 310. And the reason for this swift reaction? Hungary was not invited to join the statement. As the forint plunged, Hungary 's banking regulator hurriedly signed up to the statement, blaming the original omission on a communications mess-up, but the damage was already done.
“Each of the CEE Member States has its own specific economic and financial situation and these countries do not constitute a homogenous region. It is thus important first to distinguish between the EU Member States and the non-EU countries and also to clarify issues specific to particular countries or particular banking groups."
Well this just takes us back to Tolstoy, each of them have their own specific problems, but the underlying reality is that they all face problems, and are vulnerable, each in their own way.
Hungary's economic fundamentals are clearly much weaker than those to be found in the Czech Republic and Poland as things stand, but what about Bulgaria and Romania? And the Czech Republic and Poland are about to have a pretty hard time of it as a result of their export dependence on the West, and Poland has the unwinding of the zloty options scandal still to hit the front pages. So there is plenty of food for thought here before throwing Hungary to the wolves. A default in Hungary could very easily lead to contagion elsewhere, and then the impact in the West is very hard to foresee. We should not be playing round with lighted matches right next to our fireworks stock. "Hey, it's dark in here" and then "boom".
Yesterday it was Latvia's turn, and the cost of protecting against a Latvian default (Latvia is the first European Union member priced at so- called distressed levels) rose to a record following the announcement that the unemployement level rose from 8.3% in December to 9.5% in January, the highest level in nearly nine years. In fact credit-default swaps linked to Latvia increased nine basis points to an all-time high of 1,109 basis points, according to CMA Datavision in London. The cost is above the 1,000 level, breached last week, that investors consider distressed, and is now about 270 basis points above contracts linked to Lithuania, the next-highest EU member.
So two countries are being systematically detached here - Latvia and Hungary - and statements by EU leaders are unwittingly aiding and abetting the process. But we should all remember, after they have eaten Latvia and Hungary for breakfast, the financial markets will undoubtedly chew on other luckless countries over lunch (Romania's Q4 GDP data was out today, and it was a shocker, and S&P have already said they are "closely monitoring" the situation), before perhaps moving on to bigger game for supper.
And we should remember here, no one is too big to fall, and I have already been warning about the gravity of Germany's situation, with a rapidly ageing population, a hefty bank bailout of its own to swallow, and total export dependence for GDP growth. Final data from Markit economics out today showed that Germany's composite PMI fell to 36.3 in February from 38.0 in January. That was the lowest level registered since the series began in January 1998. And it means that the German economy - which is highly interlocked with the whole of Eastern Europe (Austria holds the finance and Germany the industrial exposure) - is certainly contracting more rapidly in the first quarter of this year than it was in the last quarter of 2008, and may well contract in whole year 2009 by something in the order of 5%. So maybe someone over there in Germany should be reading the poem you will see below aloud to "our Angela" right now (Oh, and if you don't speak German, you can find a translation here).
Als die Nazis die Kommunisten holten,
habe ich geschwiegen;
ich war ja kein Kommunist.
Als sie die Sozialdemokraten einsperrten,
habe ich geschwiegen;
ich war ja kein Sozialdemokrat.
Als sie die Gewerkschafter holten,
habe ich nicht protestiert;
ich war ja kein Gewerkschafter.
Als sie die Juden holten,
habe ich geschwiegen;
ich war ja kein Jude.
Als sie mich holten,
gab es keinen mehr, der protestieren konnte.
2 comments:
Unfortunately, Mr Gyurcsany went much too far with his request for the EUR 180bn donation. Anyone visiting Budapest in recent years will readily confirm that Hungary does need massive support, it is just too visible everywhere. The decline is rapid and manifest.
On the contrary, Slovakia, Poland and the Czech Republic have been going up quite fast and, by local standards, are doing just fine.
Obviously, everybody around here knows that well planned and fairly limited EU subsidies can do a mighty lot of good. This year alone the EU will spend about EUR 1.5 billion on Czech highways. Since this particular support program started, the improvements in Czech infrastructure have been enormous. If the EU gave the Czechs another billion or two, all construction companies round here would be working triple overtime. Just come see the construction of the R1 motorway around Prague, that is half a billion of EU money spent well and most impressively.
One more example: the German Umweltpraemie keeps and will keep the Slovak, Polish and Czech small car makers running at about 80 - 90 per cent capacity, while Spain and the UK seem to be down to less than 50. The cost for Germany? A few hundred million.
So we might find good use for a few extra billion. But why pretend that we need obscene hundreds of billions while we do not need them? Does not do anybody any good. So Mr Gyurcsany had to be stopped, and was stopped quite nicely.
By the way, the OECD forecast of yesterday (March 3) stated that Poland should in fact grow in 2009. Even if it only stagnated, it would still be no financial crisis worth mentioning.
Let us then save cash and ideas for those who will need them more (Ireland, Ukraine, the Baltics... the list is long). It seems that with a bit of luck, good old fashioned public works will do the trick in the backwaters between Dresden and Vienna.
Just come and see construction of M6, M60, M43, M3 and extension of M0 in Hungary :)Budapest is just fine, yes its city seems ruined as it has for decades, but just to remind you that Budapest's historic inner city is just way too big to refurbish it just for tourist's sake.
I think you are missing dynamics of this crisis, right now Poland is a bomb, waiting to explode.
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