Hungary turns to IMF as stress mounts in Eastern Europe, page 1

UK Telegraph

Hungary has returned cap in hand to the International Monetary Fund after kicking out inspectors last year, becoming the first country in Eastern Europe to succumb to contagion from eurozone debt stress.

Rising bond yields and a weakening forint has forced the country's Fidesz government to swallow its pride and request a "precautionary" credit from both the International Monetary Fund and Europe, reportedly of €4bn b(£3.4bn).

The growing likelihood that Hungary's debt will be downgraded has accelerated capital flight, causing two-year debt yields to jump from 5.5pc to 7.5pc since September.

"Hungary is a warning sign," said Neil Shearing from Capital Economics. "It is the country where the risks are most acute in the region, so this is where you would expect to trouble to start. We fear this may spread to Ukraine and the Balkans. Eastern Europe has enormous external financing needs for the banking system. They won't be able to roll over debts if there is a credit freeze in Western Europe." Mr Shearing said Hungary has to raise external finance equal to 18pc of GDP over the next year. The figures are 14pc for Croatia, and 13pc for Bulgaria.

Eastern Europe is dependent on eurozone lenders and their subsidiaries for about 80pc of its banking system. This leaves the region vulnerable to a credit crunch as foreign groups slash loan books – by €2 trillion over 18 months, according to a Deutsche Bank study – to meet the EU's requirement for 9pc core tier 1 capital.

Hungary is a clear indicator of what lays ahead while the crisis deepens in the eurozone. The malignant cancer continues to metastasize throughout the system, where contagion is spreading beyond the epicenter of the eurozone debt crisis to other European countries. Should there be a credit crunch in the eurozone, it will hit deep, far and wide.

reply to post by surrealist

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The IMF is going to help them how? The only help they will be is help them out of everything they have left. THese countries are treating the situation by putting a band aid on a wound when their arm has been cut off.

reply to post by camaro68ss

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Patience young man. Rome wasn't built in a day and she's gonna take a little time to fall as well. Only problem is that when she does rebuild she will be worse than ever before, but that is another subject for another day.

reply to post by redrose123

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I highly doubt if Hungarians would be willing to return to their old lifestyles i.e. hunter-gathering. That's what you get for wanting to be like Germany when all you can sell them is tomatoes and olives. Isn't that right, Greece?

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