If the Year Ends With a 9, Prepare for a History Lesson


In recent weeks, European media have dedicated many column-inches to the fall of the Berlin Wall, symbolizing the end of Communism on the continent 30 years ago. But this year also marks 10 years since the worst downturn in the Hungarian economy this millennium.

In 2009, Hungarian economic output slumped by 6.7% compared to the previous 12 months, while the average unemployment rate jumped to 10%, versus 7.8% of 2008. The national mood was grim.

In truth, all of Europe (bar Poland) endured recession that year as the global financial crisis of 2008, triggered by the collapse of Lehman Brothers in the United States in the September, fed through financial markets and into real economies around the globe.

Each and every financial jurisdiction has a unique story as to how it coped with this shock, but Hungary, because of the size and composition of its debt, was particularly vulnerable. It suffered accordingly.

The anniversary of this economic Hungarian annus horribils, along with related history both previous and in its wake, has been documented by one of the key players who battled to contain it: Júlia Király, deputy governor of the National Bank of Hungary (MNB) responsible for financial stability from 2007 to 2013, published her personal account of this tumultuous period this summer.

“A tornádó oldalszele” (“The side wind of the tornado”) is thus far available only in Hungarian (an English version is expected next year), but the author recently sat down with foreign journalists to give a verbal outline of her 430-page tome.

Király’s account of the crisis is particularly refreshing as it contains criticism of all involved, not least the MNB leadership, herself included.

“We [the central bank] should have fought much more to stop the FX lending,” she says, speaking of the population’s disastrous stampede during the 2000s into mortgage loans denominated in foreign-currency.

Despite the MNB’s warnings, the public rushed to take advantage, or so it seemed, of the low interest rates on offer.  The 62-year old economist admits too that the MNB should have argued “much more fiercely” with the Finance Ministry to limit the commercial banks’ freedom to modify interest rates on retail loans. This was “a terrible failure” which only deepened the social crisis. “People really suffered,” she says.

Credit Given

In spite of her apparent liberal leanings, Király gives credit to the policies of the Viktor Orbán government to convert both state and household debt into domestic forint since it regained power in 2010 – although she is critical that its first efforts were aimed at the rich, rather than the average-income Hungarian.

She is critical, too, of those Fidesz leaders who, in June 2010, talked of Hungary as “the next Greece”, this just after an international effort to save Athens from bankruptcy.

“Hungary came out of the crisis by 2010. At the beginning of 2010, this country was on a growth path,” she says. “Government debt was declining, we could already issue new bonds on the international markets, the NPL [non-performing loans] ratio of banks was below 10%.”

Hungary’s subsequent crises of 2011-12, she insists, were the result of ill-advised policies that “had nothing to do with the euro crisis” of the time.

Indeed, the only recent government to emerge more or less unscathed in Király’s work is the short-lived “technocrat” administration of Gordon Bajnai, which negotiated the rocky path of 2009 and early 2010 prior to Orbán’s first “super-majority” regime in May that year.

Király’s even-handed approach, of course, makes her account all the more credible.

The Hungarian-language publication comes with sections devoted to helping the non-financial expert better understand the story. It is to be hoped that the English language version is prepared with equal care to foster a far broader awareness of events in Hungary of those times.

In 1989, Berlin lost its wall: two decades later, thousands of Hungarians lost their walls as banks repossessed the homes of owners who defaulted on FX mortgage repayments, credit that arguably should never have been offered in the first place.

Let us hope the leaders of today and the future learn the lessons, and such historical events never come to be repeated.    

The Bottom Line is a monthly column written by Kester Eddy, a long-standing and well respected Budapest-based business and economic journalist, who has written for the Financial Times and many regional publications. The opinions expressed in the column are not necessarily those of the Budapest Business Journal. To comment on this column, or on anything else in the BBJ, email the editor at [email protected]

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