Worries over Hungary drive forint to one-year low

Worries over Hungary drive forint to one-year low
By Neil Buckley, East Europe editor
Copyright The Financial Times Limited 2010
Published: June 4 2010 15:19 | Last updated: June 4 2010 15:19
http://www.ft.com/cms/s/0/467b07dc-6fe1-11df-8fcf-00144feabdc0.html


Hungary’s currency fell to a one-year low against the euro on Friday after a senior official warned for the second time in two days about the weakness of its economy and public finances.

The forint fell about 2 per cent after Peter Szijjarto, a spokesman for prime minister Viktor Orban, was quoted by news agencies as saying Hungary’s economy was in a grave situation and that a default was a possibility.

The currency extended its falls on Thursday following comments from Lajos Kosa, a vice-president of the ruling Fidesz party, that Hungary was in danger of suffering a Greek-style crisis.

Hungarian shares fell and spreads on five-year credit default swaps widened sharply after the new comments on Friday.

Investors were mystified by the signals coming from the Fidesz government, which is expected to unveil findings from a fact-finding committee on the state of the economy this weekend, followed by an economic action plan.

According to existing official figures, Hungary’s debt totalled 78 per cent of gross domestic product last year. That was little above the European Union average of 74 per cent and well below Greece’s three-digit total.

The Fidesz government, however, has called into question the previous administration’s fiscal figures and accused it of lying about the true state of the economy.

Mr Kosa’s remarks on Thursday, though they unsettled markets, were viewed by many as a verbal slip. But the refusal by the prime minister’s spokesman to distance himself from the earlier comments caused widespread consternation.

They came as investors were already anxious about the health of European banks and a weaker-than-expected US jobs report.

“The new [Hungarian] government needs to think a bit more clearly about communication with the market,” said Tim Ash, global head of emerging market research at Royal Bank of Scotland. “You simply cannot talk like this in these markets.”

The prime minister’s spokesman warned that Hungary’s budget deficit might be deeper than previously assumed, saying this year’s target of a budget deficit of 3.8 per cent of GDP was not credible.