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Conflicting reactions to Hungary’s double junk status

December 26th, 2011

Right-wing commentators attribute the downgrade of Hungary’s sovereign debt by Standard and Poor’s to the deepening crisis of the Eurozone. According to left-wing pundits it just reflects the failure of the Orbán government’s unorthodox economic strategy. A moderate conservative observer cautions against an overly independent policy line.

Standard and Poor’s cut Hungary’s sovereign credit rating by a notch to junk status on December 21. Moody’s Investors Service had downgraded Hungary’s sovereign debt in November, and S&P announced then that it would wait with its review of Hungary’s credit rating until February, to see if the government brokers a new credit line agreement with the IMF (see BudaPost November 28). According to Standard and Poor’s analysis, the lowering of Hungary’s debt below investment category was necessitated by several factors, including the weaker European economic outlook and the  Hungarian government’s plans to curtail the Central Bank’s monetary policy independence (see BudaPost December 22).

In Magyar Hírlap, Attila Csákó finds the downgrade devastating, since investors do follow the recommendations of the international rating agencies, despite their past failures. Junk status will imply that investors will be discouraged from buying Hungarian bonds and thus the country will have to pay higher interest rates on public debt. Stocks will depreciate and the Forint will lose value against foreign currencies, which will increase inflation.

Csákó, echoing the government’s reactions, notes that the Hungarian economy is on firm footing. The deficit is to stay below three percent, which is unparalleled in the EU. In addition, the government plans to reduce sovereign debt in 2012. He believes that the real reason for the downgrade is that investors want to force the government to withdraw the extra taxes imposed on banks and foreign retail chains. “The credit rating agencies are used in order to create a situation in which Hungary has no option but to accept the diktat of the IMF”, Csákó concludes.

As BudaPost reported earlier (see BudaPost December 24), Matild Torkos in Magyar Nemzet wrote that the Hungarian government “hit the wall several times and has often been forced to retreat”. Torkos suggests that although the Hungarian economy is in good shape, after the downgrade the government has no option but to strike a deal with the IMF “even at higher interest rates”. She also recommends that the government “investigates the possibility of suing the credit rating agencies downgrading Hungary to junk for the damages caused”.


An editorial in Magyar Narancs rejects the right-wing interpretations blaming the downgrade on the European context and on the irresponsible rating agencies. The government offers various “fairy tales” to support its claim that Hungary is an innocent victim of external forces, rather than of its own failures. These narratives, however, are not bought by anyone, Magyar Narancs contends.

Despite the Prime Minister’s claims to the contrary, Hungary is unable to finance its debt from the international markets, adds Róbert Friss in Népszabadság. The left-wing commentator suggests that instead of fighting for economic sovereignty, the government should beg the IMF for loans with favourable rates.

Friss believes that Prime Minister Viktor Orbán has painted himself to a corner. He wants to strengthen Hungary’s independence in order to establish what Friss thinks is an authoritarian state in the heart of Europe, however, his government also needs the support of the EU to avoid insolvency, Népszabadság’s commentator concludes.

After the downgrade, foreign investors will now have to get rid of Hungarian bonds, Miklós Bonta warns in Népszava. As for the possible consequences, Bonta thinks that Prime Minister Viktor Orbán must either abandon his unorthodox economic strategy, or risk sovereign default. The government’s initial reactions to the downgrade, however, suggest that it is not ready to acknowledge the complete failure of its economic policies, Bonta contends.

In a commentary composed before S & P announced its decision, Philosopher Ferenc Hörcher believes Hungary should adapt its policies to the international environment. In today’s globalised world, no country can afford to ignore the judgement of the international community, the conservative writer warns in his new site, Mos Maiorum. World opinion is an intricate system of judgements by politicians, intellectuals and financial operators that ultimately is expressed in investors’ choices, “which can topple even the best of governments”. During his first term (1998-2002), PM Orbán was famous for “playing for the Hungarian public gallery”, Hörcher remembers. But Hungary has since joined the European Union. “Europe was conspicuously active in forcing the prime ministers of Italy and Greece to resign, and therefore it does not seem reckless to assert that should the head of the Hungarian government fail to adapt to the new rules of the game, he may also be seen by the European powers as a stumbling block”.

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