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The fear of a credit crunch

November 7th, 2012

A long-time right-wing critic of the government’s economic policy warns that prolonged banking taxes might result in a steep decline in economic output.

Banks are offering less and less credit, which makes the chances of a recovery even thinner, Csaba Szajlai warns in Magyar Hírlap.

The right-wing newspaper was one of the sponsors behind the two “peace marches” held this year in defence of the government’s economic policies, against criticism by the European Commission and the International Monetary Fund, but its main business analyst has been openly critical of the strategy pursued by Mr György Matolcsy, the Minister of the National Economy over the past two years. (See BudaPost, 2011 – 2012).

This time he reminds the reader of the 19th Century statesman István Széchenyi’s famous book entitled “Credit”, where the great reformer urged the creation of a financial infrastructure feeding Hungary’s desired industrialisation with money. “Without credit there is no development”, he quotes Széchenyi.

Now Hungary, he continues, is short of capital. So either we let foreign savings in through the banking system, or we resign ourselves to a long stagnation. Foreign investors, of course, need sufficient returns, political stability and a stable system of taxation, before they decide to invest somewhere. In other words, if the government continues to “squeeze the banks”, then this year’s recession may well continue in 2013. What Szajlai fears most is that as a result of the planned squeeze, big enterprises might withdraw their turnover and their deposits from Hungarian banks, in which case credit might get completely frozen and “the performance of the economy might drop by up to ten per cent”.

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