Hungary Gets A Rap On The Knuckles Too

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Hungary converted itself into the latest country to join the line of EU members awaiting chastisment for failing to enforce budgetary discipline after it became clear that its deficit for 2005 could be almost double official forecasts.

Joaquín Almunia, EU monetary affairs commissioner, told European finance ministers Hungary’s deficit this year was projected to be 6.1 per cent although some economists say it could top 7 per cent.

The state of Hungary’s public finances was only revealed after the country’s central bank blew the whistle on the government, which used creative accounting to massage down the deficit. The revelation is embarrassing for the European Commission, which reported in July that Hungary was “within reach” of achieving its targeted deficit for 2005 of 3.6 per cent.

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About Edward Hugh

Edward 'the bonobo is a Catalan economist of British extraction. After being born, brought-up and educated in the United Kingdom, Edward subsequently settled in Barcelona where he has now lived for over 15 years. As a consequence Edward considers himself to be "Catalan by adoption". He has also to some extent been "adopted by Catalonia", since throughout the current economic crisis he has been a constant voice on TV, radio and in the press arguing in favor of the need for some kind of internal devaluation if Spain wants to stay inside the Euro. By inclination he is a macro economist, but his obsession with trying to understand the economic impact of demographic changes has often taken him far from home, off and away from the more tranquil and placid pastures of the dismal science, into the bracken and thicket of demography, anthropology, biology, sociology and systems theory. All of which has lead him to ask himself whether Thomas Wolfe was not in fact right when he asserted that the fact of the matter is "you can never go home again".

4 thoughts on “Hungary Gets A Rap On The Knuckles Too”

  1. Now could somebody tell me how to punish a group whose majority has broken the rules and has to approve punishment?

  2. “tell me how to punish”

    I think Oliver, mid-term, you can safely rely on the financial markets (and particularly the euro-bond markets for that). Capital flight from the dollar I don’t see, but euro-bonds, well…….

  3. But would you have seen capital flight from Japan back when? You should, and the fact that there was no financial market catastrophe points to the (remediable, though not easily remediable) difference between the EU and everybody else: it´s got a central bank without a treasury to match it.

    (Or did you change your opinion and consider the yen to be equal to the dollar now?)

  4. “But would you have seen capital flight from Japan back when? ”

    No, you’ve got a reasonable point Joerg. Japan may not be getting a self-sustaining economic recovery, but it does seem to have developed (for the time being anyway) a self-sustaining financial system. Quite how the markets will react if Japan doesn’t take off this time is not at all clear, but this is a very hard one to call. Japan is rich, and there is still plenty of juice in the lemon.

    But Italy isn’t Japan, and it was the Italian situation I was thinking about. I just don’t see a solution to Italy’s sovereign debt problems short of default. Put if there is even a whisper of sovereign default in any one of the national euro-bond markets, then this will send shock waves right through the system, including flight into the relatively safer (dollar) assets. The ECB will be relatively powerless in this situation were it to occur for precisely the reason you mention.

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