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Editor’s Note: This article is part of a series on the geopolitics of the global financial crisis. Here, we examine Hungary’s economic troubles as an indicator of what Central Europe and the Balkans could experience as capital begins leaving the region.
International Monetary Fund (IMF) officials indicated Oct. 14 that they are in close consultation with the Hungarian government about a potential package of technical and financial support. The Hungarian Finance Ministry maintains that going to the IMF is a “last resort” option. However, on Oct. 15 the BUX, Hungary’s key stock benchmark index, fell 7.7 percent and the forint fell 5.4 percent against the euro.
Hungary’s economy is one of the most fundamentally weak European economies; many years of fiscal irresponsibility left the country with one of the highest budget deficits in Europe — currently 5.5 percent of gross domestic product (GDP), which is actually a sharp improvement from previous years. The slumping forint and equity markets are therefore unsurprising in the current capital-starved environment, which is bound to exacerbate underlying deficiencies.
However, the current crisis does not completely illuminate the daunting problem of foreign currency lending in Hungary — an issue that may loom for all of Central Europe and the Balkans. Likely, the IMF’s involvement in Hungary’s troubles only further illustrates Europe’s inability to weather the crisis as a bloc — a problem that could have far-reaching consequences for Europe’s unity and ability to present itself as an economic powerhouse to new member states and prospective candidates.
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