Widespread international condemnation greeted the arrival of Hungary’s authoritarian new constitution this week. The government led by the prime minister, Viktor Orban, has used a large parliamentary majority to push through the new “basic laws”. The currency, the forint, promptly slumped to a new record low against the euro. Hungarian bond yields have shot up, with ten-year paper yielding more than 10%. The new constitution is hampering talks with the International Monetary Fund and the EU over a precautionary credit line to ease the squeeze on the economy.
What the commentators said
Orban, says Hans Rauscher in Austria’s Der Standard, is “a Putin in the middle of the EU”. The constitution massively increases the powers of the ruling party, changes electoral rules in the government’s favour, clamps down on the courts and imposes state control on the central bank. It’s “an extraordinary affront to basic liberties”, said The Times. It is also “incompatible with EU membership”. While it is in force, “not a cent” of aid should be paid out.
Yet Hungary could soon need the help. As Capital Economics pointed out, the economy is already set to slide into recession, and foreign borrowing levels are unusually high, so a plummeting forint makes the debt burden worse. A particular problem is that Hungary’s banks depend heavily on credit lines from western European parent banks, and they will have to roll over debt worth 20% of GDP in the next year. To cap it all, the government is already among the region’s most indebted.
Already the central bank has had to raise interest rates to stem capital outflows and prevent a collapse of the currency. “Restoring investor confidence is critical,” said Capital Economics, but higher rates will squeeze the economy further. With International Monetary Fund help looking elusive, due to the constitution, the situation is going “from bad to worse”.