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’Hungarian cure’ defended

January 31st, 2015

A right-wing commentator takes up the defences of Hungary’s therapy for its forex mortgage hangover in the face of criticism by the Financial Times, which warned other countries of the region against copying the ‘Hungarian cure’.

In his Magyar Nemzet editorial, Csaba Erdősi argues that the Hungarian model cannot be simply copied, for it took several years to put it into operation, but that certain elements of the ‘Hungarian cure’ may be adopted in other countries as well. Neil Buckley wrote in the Financial Times on Wednesday that Poland, Croatia, Serbia and Romania face the same kind of massive forex mortgage problem Hungary has solved, but advised them to “beware Hungary’s cure”. In what he calls a ‘messy struggle’, Hungary made ‘several missteps’, by imposing huge burdens on the banks as part of a scheme aimed at taking over some of them from their western owners.

Erdősi contests this picture and argues that in a long process, Hungary didn’t only convert forex mortgages into forints, but also managed to reduce monthly instalments. In order to do so, it had to wait for Hungarian and European courts to decide that the banks had employed illegitimate double exchange rates and reserved illegally the right to raise interest rates unilaterally. Hungary also had to consolidate its financial standing and build up the monetary reserve to offer the foreign exchange necessary to convert the forex mortgages into Hungarian Forints. That operation did not make sense as long as Forint interest rates were high, it therefore only became possible when the base interest rate was brought down to 2.1 per cent late last year. Luckily enough, the conversion took place before the Swiss Franc soared by at least 20 per cent early this year. Other countries cannot skip the long process Hungary had to go through, but why should they not employ some of the elements of the Hungarian solution?, Erdősi asks, before concluding that “it was not by chance that Bloomberg, Le Figaro and other western newspapers and news agencies called the Hungarian solution a positive example”.