Wednesday, April 28, 2010

Pressure on Hungarian Currency

The Hungarian currency, the forint, has been under pressure the last couple of days as comments from the country’s premier-in-waiting raised worries over its fiscal position.

Viktor Orban, Hungary’s premier-in-waiting, stated yesterday that Hungary’s fiscal deficit is going to be higher than the target agreed with the IMF. It appears he's not talking a percent or two, but double digit higher.

The difference between in Hungary and the PIIGS is significant. The PIIGS are all members of the EU, so they do not have their own currency by which they can print themselves out of the debt crisis. Hungary, not being a member of the EU, has its own currency. Thus pressure in Hungary is going to be on its currency rather than its debt. It can just print more forint to pay its debt. This, naturally, solves its debt problem, but creates even greater problems down the road, a distorted capital structure and increasing inflation.

No comments:

Post a Comment