A Goulash Meltdown? - Forbes.com
Second, the government has access to 5 billion euros that were made available by the European Central Bank in a swap operation. The willingness of the ECB to "bail out" a country that is not yet a member of the Euro zone is significant, and points to the concerns European Monetary Union members now have about the disruptive effects of a crisis in Hungary. Also, the ECB liquidity support, unlike the conditional International Monetary Fund loans, comes without any strings attached. The additional issues caused by the ECB action, however, are important: If the financial pressures intensify and 5 billion euros is not enough, would the ECB lend more? Will the ECB do similar swaps with other emerging European economies that are likely candidates, in the next few years, for EMU membership? Should Hungary use this additional international liquidity to prevent a further depreciation of its currency, or should it save this ammunition in case things get worse?
Second, the government has access to 5 billion euros that were made available by the European Central Bank in a swap operation. The willingness of the ECB to "bail out" a country that is not yet a member of the Euro zone is significant, and points to the concerns European Monetary Union members now have about the disruptive effects of a crisis in Hungary.
Also, the ECB liquidity support, unlike the conditional International Monetary Fund loans, comes without any strings attached. The additional issues caused by the ECB action, however, are important: If the financial pressures intensify and 5 billion euros is not enough, would the ECB lend more? Will the ECB do similar swaps with other emerging European economies that are likely candidates, in the next few years, for EMU membership? Should Hungary use this additional international liquidity to prevent a further depreciation of its currency, or should it save this ammunition in case things get worse?
Further, on the foreign ownership connection:
Since the Hungarian operations of foreign banks are profitable, it should not be in their interests to roll off their exposure to Hungary. On the other hand, many European banks have their own domestic stresses, given the financial turmoil in the Euro zone, and their need to deleverage and reduce risk exposure is leading to destabilizing pro-cyclical behavior toward their emerging Europe subsidiaries. This pro-cyclicality of the credit behavior of foreign banks in emerging markets is a well-known phenomenon in the empirical academic literature on this subject.
(I won't comment any of this now, but if you read all of that article, I note that even Roubini strikes me as more a conventional free-marketer.) *Lunatic*, n. One whose delusions are out of fashion.
The willingness of the ECB to "bail out" a country that is not yet a member of the Euro zone is significant, and points to the concerns European Monetary Union members now have about the disruptive effects of a crisis in Hungary.
He sees it as a defensive move to protect the eurozone (ie a self-interested decision) rather a move to actually help Hungary. That's what I mean by seeing it through a purely economic lense. In the long run, we're all dead. John Maynard Keynes
More to the point, what do you think of his claim that the risk of a domino effect across the new EU members could overwhelm the ECB's resources? (I think he is mistaken about the size of the default risk, but wqonder what's your take.) *Lunatic*, n. One whose delusions are out of fashion.
(My take is that even Hungary is/was not in danger of exhausting this cushion, much less the rest of the new members, but that may not be your take or from where you approach this question.) *Lunatic*, n. One whose delusions are out of fashion.
