October 24, 2008
Not waiting until the banks will plea for government bailout, the cornered government turned the tables in a preemptive threat to the banks: give your money before we start to legislate against you.
Hungary has not had a mortgage crisis yet, but the country’s public finances are a mess. Since the accession to the European Union the country had no chance to enter the ERM-II and start the adoption of the euro, so its very open, free-trading economy has to do with the forint. The government had excessive deficits since 2002, crowding out everybody else from the credit market and pushing up interest rates a few percentage points above the euro rate. The Hungarian families, hoping to pay back some time in euros, started to take out their mortgages in euros and Swiss francs, which just suited their banks fine, who happened to have Western European owners, and could easily find loanable funds abroad than in cash-strapped Hungary. Everybody had to sign a paper that he or she understood the risks involved: if the forint stumbles, mortage rates will be high.
During the crisis the Hungarian forint was struck heavily, the summer 1:240 euro rates are down to 1:286 and the households should have to pay for the downside of the former deal. Not so, thought the government, which threatened the banks to force them by legislation to free the households from the exchange rate risk at the bank’s cost. So, the bank should pay either from the money earned on those who did not expose them to euro or franc risk and took out their mortgages in forints, or from the stockholder’s money. The stocks of largest bank on the Hungarian market already trades below its book value.
Hungary has had a public deficit criss, not a banking crisis. We will see if we can swap them.Author : Dániel Antal