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2020 | Buch

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Hungary and Other Emerging EU Countries in the Financial Storm

From Minor Turbulences to a Global Hurricane

verfasst von: Prof. Júlia Király

Verlag: Springer International Publishing

Buchreihe : Financial and Monetary Policy Studies

Enthalten in: Springer Professional "Wirtschaft+Technik" , Springer Professional "Wirtschaft"

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Über dieses Buch

This book analyzes the banking crisis and the events surrounding it in Hungary and other emerging EU member countries in 2007-2013. Written by Júlia Király, a former policymaker, and the Deputy Governor of the Hungarian Central Bank at the time of the crisis, it also offers a firsthand account of the processes in and responses to the financial crisis.

While there is extensive literature on the crisis, most of it focuses on the US or the Eurozone, sometimes mentioning the “emerging world” in passing. However, Central and Eastern Europe experienced the crisis very differently than other emerging countries. In the pre-crisis years, the region in accession to the EU attracted abundant fresh capital, but the seemingly unconstrained global liquidity fuelled credit bubbles. After the Lehman crisis, capital rapidly fled these countries. In this part of the world, the recession proved to be much worse than elsewhere, with double-digit growth soon turning into a double-digit decline in GDP. Several countries had to turn to the IMF and the EU for stand-by credit. Based on her own inside experience as a top central banker, the author offers a personal yet professional analysis of the causes and consequences of the financial hurricane.

Inhaltsverzeichnis

Frontmatter

Chapter 1. A Short Postcommunist Economic History of Emerging Europe

Abstract

Due to the collapse of the former Soviet Empire, new market economies experienced a large-scale loss of external markets, the loss of former economic relations, that is, a devastating external shock. The transformation shock led to escalating internal and external debts, double-digit inflation, asset devaluation, and the capital loss of the corporate, and the financial sectors. This chapter gives a short economic history of the Central and Eastern European (CEE) countries since the transition of 1990 and details the precrisis political and economic environment in Hungary, with special regard for the fiscal alcoholism and the crisis of the socialist government 2002–2010.

Júlia Király

Chapter 2. Pre-crisis Central Banking

Abstract

Central banks share similar functions all over the world, which reflects that their historical development is quite alike despite their geographical or political differences. If you visit the sites of central banks, the similarities are striking. This chapter describes the general and specific functions of central banks, with special regard to the dominant monetary policy framework, the inflation targeting. It summarizes the difficulties of the precrisis Hungarian Central Bank as a nonregulatory, nonsupervisory institution and analyses the reasons for the failure of inflation targeting in Hungary.

Júlia Király

Chapter 3. Bubbles Everywhere (The 2000s)

Abstract

In the 2000s under the surface of the great moderation, there were huge imbalances accumulating: overspending households and governments, accumulated debts, overleveraged people, and institutions. Endlessly flowing cheap credit. The story of the precrisis credit bubble was similar in emerging Europe. However, in these countries, the precrisis credit booms started with the spread of foreign currency loans. All capital controls had been lifted, and the accelerating capital inflow boosted not only local lending but consumption and investment as well. Households, SMEs and local authorities had no natural hedge. This chapter analyses the causes and the potential threats of these bubbles.

Júlia Király

Chapter 4. Under the Clouds of the Subprime Crisis (July 2007–September 2008)

Abstract

The story of the subprime crisis is well-known, with excellent shorter and longer papers, books, and memoirs analyzing its causes and consequences. However, much less attention was paid to the so-called decoupling process of emerging countries in the pre-Lehman period. This chapter describes the special contagion process of 2007–2008 in emerging EU member states and offers a detailed analysis of the positive features and the vulnerabilities of these economies. Day to day dilemmas of the Hungarian Central Bank illustrate the difficulties of policy makers.

Júlia Király

Chapter 5. The Lehman Tsunami (September–October 2008)

Abstract

The Gömböc—a Hungarian innovation, almost as famous as the Rubik’s Cube—has only one stable and one unstable point of equilibrium. In some sense, the Gömböc was the metaphor of the Hungarian economy, which was in its unstable equilibrium in 2008, and the hope was that the financial crisis would not swing it out. However, on September 15, the Lehman had collapsed, and the Gömböc-economy swung out of its unstable equilibrium to roll over a terrible crisis period in the search for the stable equilibrium. Hungary was seriously hit by the Lehman-collapse and faced a serious liquidity crisis.

Júlia Király

Chapter 6. The “Rescue Team” and Rescue Package (October–December 2008)

Abstract

This chapter is devoted to the management of the 2008 liquidity crisis. The Hungarian Central Bank introduced several new measures, eased the collateral acceptance and reduced the haircut, reduced the required reserve ratio, galvanized the government paper market, and provided emergency assistance to individual banks, when needed. Even The Economist admitted: “The Hungarian Central Bank is impressively well-run.” These measures were well supported by the stand-by loan agreement with the IMF and the EU. Hungary was the first, but not the last on this road.

Júlia Király

Chapter 7. Emerging EU Member Countries in the Storm (Spring 2009)

Abstract

In 2009 credit flows slowed down, international trade collapsed and most of the countries went through a deep recession. While countries around the world announced comprehensive rescue plans for their banking system, emerging Europe was left on its own devices. Soon, the whole region—irrespective of EU membership—was considered the most vulnerable part of the emerging market world. And, then a new international initiative of public–private cooperation was born, the first of this type: the Vienna Initiative. This chapter recounts how the collapse was avoided with the help of it.

Júlia Király

Chapter 8. Recovery from the Deep Recession (March 2009–April 2010)

Abstract

In Hungary, the special features of the crisis to be solved run parallel: deep deleveraging, foreign exchange loan crisis (housing crisis), and recession. In this chapter, the joint efforts of the Central Bank and the Bajnai Government to stabilize the country are accounted for. Hungary regained its momentum. The economy was put back on a sustainable growth path with a moderate budget deficit and declining internal and external debt. Unemployment was diminishing, export was strong, contributing to a positive balance of payments. Though the exchange rate was 10% weaker than before the crisis, the nonperforming ratio of foreign exchange denominated mortgage loans was still much below 10%.

Júlia Király

Chapter 9. Eurozone Crisis in Europe and a Bold U-Turn in Hungary (May–December 2010)

Abstract

Spring of 2010 was overshadowed by the Greek crisis. When the representatives of recently elected Fidesz government announced that Hungary is in a similar situation to Greece the risk spread of Hungary surged and the forint depreciated. The subsequent steps of the Orbán government contributed to the negative evaluation of the country. This chapter scrutinizes the political and economic U-turn of the authoritarian Orban government. “Orbanomics” and its consequences are described in detail.

Júlia Király

Chapter 10. Hungarian Double Dip (2011–2012)

Abstract

The effect of the Eurozone crisis was much less forceful in CEE countries than in 2008–2009. Hungary was an outlier, the country experienced a significant increase in risk spreads, downgrading, and a second recession in 2012. Besides global and regional factors, this phenomenon is accounted for largely by local factors, such as the mismanagement of FX denominated loans, permanent state intervention into the everyday business, and government-managed corruption.

Júlia Király

Chapter 11. Farewell to the Central Bank (2013)

Abstract

Appointment of central bank governors is usually a political decision, and the selection process is not an open competition. In March 2013 the Minister of Finance, George Matolcsy was nominated as governor of the MNB. This chapter is a unique account of the first month of a populist illiberal central banking. When the new governor was nominated, dozens of former experts were fired or left the Hungarian Central Bank voluntarily. The atmosphere of fear and agony, the new obscure decision-taking mechanism led to the resignation of the author. The background of this step is described in detail.

Júlia Király

Chapter 12. Lessons and Aftermath

Abstract

The lessons of the global financial crisis have been summarized in various reports, lectures, and textbooks. Rather than repeating them, I would highlight some of the crisis lessons from the point of view of emerging EU members, in particular Hungary. This region was special from several aspects, and Hungary is a unique case study. It survived a serious liquidity crisis in 2008 followed by a deep recession in 2009 and a promising recovery. However, due to the social tensions aggravated by the crisis, Hungary was the first to descend into a spiral of destructive and nationalist-populist policy reactions. It had the first illiberal government in Europe whose dangerous U-turn pushed the country into a second financial crisis and recession in 2012. More than ten years have passed since the eruption of the global financial and economic crisis. Thus, while summarizing the lessons, we can investigate whether recent developments, the COVID-pandemic related economic crisis, and its management justify or contradict the lessons learned.

Júlia Király

Titel: Hungary and Other Emerging EU Countries in the Financial Storm
verfasst von: Prof. Júlia Király
Verlag: Springer International Publishing
Electronic ISBN: 978-3-030-49544-2
Print ISBN: 978-3-030-49543-5
DOI: https://doi.org/10.1007/978-3-030-49544-2