Hungary turns to IMF as stress mounts in Eastern Europe

„Lars Christensen from Danske Bank said Balkan states are in the firing line as Greek lenders batten down the hatches. »Bulgaria faces a significant squeeze because Greek and Italian banks make up 60pc of loans«, he said. The story in Hungary is complicated by an erratic government accused of violating EU principles across the board, from confiscating private pensions and imposing an ad hoc bank tax, to judicial abuse and curbing press freedoms.

»They are not following the rule of law«, said Mr Christensen. »This latest move of going back to the IMF smells of desperation. They have done a volte face«.

It is unclear how the IMF will respond given that Hungarian leaders vow to resist foreign demands for policy changes. »The IMF is not simply going to roll over and create new facilities for Hungary when it sees policies that it disagrees with«, said Peter Attard Montalto from Nomura.

Hard reality may dictate events. Public debt is near 80pc of GDP, high for an economy with near zero growth and 7pc to 8pc borrowing costs. Hungary must repay €5.9bn in EU-IMF loans, starting early next year. Gross external finance needs for 2012 are 34pc of GDP, including banks. Almost two-thirds of mortgages and household debt are in the uber-strong Swiss franc, creating a lethal currency mismatch with the tumbling forint. The central bank may have to raise rates to shore up the currency, even though recession threatens. Hungary is in a classic foreign debt vice.”