Many political parties talk left but act right when they win power. In Hungary it’s the other way around, at least when it comes to the banks and multi-nationals. The ruling right-wing Fidesz party has just passed a law that has enraged the banks and triggered demands that Brussels intervene to protect their profits.
About two thirds of Hungarian mortgages are denominated in foreign currency, mostly in Swiss Francs. They were taken out during the last decade, when banks offered drastically lower interest rates on foreign loans, and a Swiss franc cost around 150-160 forints. Now, thanks in part to the Eurozone crisis, the franc is trading at around 235. Unemployment has soared to nearly 11 per cent, inflation is expected to reach 4.7 per cent and growth is predicted at 1.7 per cent. Not surprisingly, in this gloomy economic climate, more than 200,000 homeowners are struggling to repay their debts and the value of their properties has slid further in a stagnant property market.
The new law forces the banks to accept repayment of home loans at 180 forints to the franc. The banks, many of which are Austrian or Italian-owned, will have to absorb the difference and are furious, accusing the government of undermining the rule of law and breaking private contracts. Although only those who can repay the whole mortgage in full are eligible for the bail-out, just a small minority of borrowers.
The government is taking ad hoc decisions without consultation or feasibility studies says Peter Duronelly of Budapest Investment Management. “They are handing money to the rich, who will not consume more and neither they nor their supporters understand this. The banks have extra and unpredictable burdens, which decreases their ability to lend. The business environment is deteriorating rapidly and confidence in the rule of law and the institutions is going down.”
The government denies such claims. The banks should have properly warned borrowers of the risks, says Zoltan Kovacs, minister of communications. Foreign currency debt is now a strategic economic issue that is dragging down the whole economy. The government’s responsibility is to take action. “The banks’ behaviour was unethical and irresponsible,” says Kovacs. “It was the wild west of borrowing.”
Even if Brussels does step in, the banks are unlikely to get much succour. Last year the Fidesz government passed special “crisis taxes” on energy, finance, retail and telecommunications to narrow the soaring budget deficit. The European Commission has demanded that the Hungarian government lift the telecommunications tax, saying it is illegal. Budapest’s response? No, we won’t and if you don’t like it, then take us to court. Last year the government told the International Monetary Fund and the World Bank to get lost when it did not like their terms.
Such obstinacy is very Hungarian, reminiscent of the 1956 revolution when street-fighters took on Russian tanks with home-made petrol bombs. How practical it is for a small country linked irrevocably to the Eurozone to give two fingers to major banks and global financial institutions is another matter.