Some calm amid storms

„There are more immediate worries, too. As the crisis bites in the rich world, lower demand is hurting the east; the most recent GDP figures showed a fall in growth across much of the region. A credit squeeze will hit those still depending on external financing. Here, notes Mr Shearing, Hungary could be the most vulnerable, thanks to a combination of indebtedness and political unpredictability. Foreign-currency borrowing, 95% of it in Swiss francs, accounts for over two-thirds of total lending.

The government in Budapest is offering to take on the burden for three years by fixing an exchange rate at which some households can pay mortgage interest. Any shortfall will be guaranteed by the state, in return for a fee levied on the banks. But this is a temporary palliative. Transferring all foreign-currency debt into local currency could cost 7% of GDP, the central bank reckons. Jittery investors will not be reassured. If Hungary again needs outside support, it may gain a less sympathetic hearing than it did in 2008.

The risk of contagion aside, the region’s biggest weakness is the grim combination of rich-country demography with poor-country living standards, with migration as the best answer. Poland’s population has fallen from 38m to 36m since 2004; several other countries have similar losses. Politicians have yet to show that they can persuade these lost compatriots to vote with their feet and head home.”