Defaulting banks - where will it stop?

[Jan Klimkowski]

The international speculators turn their electroshock prods on Hungary:

Hungary Vows to Avert Greece-Like Crisis

By VERONIKA GULYAS and MARGIT FEHER

BUDAPEST—Hungary's new government Friday failed to calm financial markets that were roiled by a senior official's warning that the country faces a Greece-style fiscal meltdown.

The Hungarian forint tanked in currency markets, where the euro was also coming under pressure, on remarks Thursday by the vice president of the Fidesz party, Lajos Kosa, that Hungary is in a Greece-like sovereign credit crisis.


A spokesman for Prime Minister Viktor Orban declined to comment on the official's remarks. Spokesman Peter Szijjarto said the new government was committed to prevent a Greece-like crisis, but claimed Hungary was in a severe situation.

"The government is ready to avert the Greek road," he said, but warned that the budget deficit could be deeper than previously assumed and that the Hungarian economy would need to be reformed.

"There is nobody in the country apart from the previous government who still says the budget deficit of 3.8% of gross domestic product can be reached," said Mr. Szijjarto. He was referring to the budget-deficit agreed previously with the International Monetary Fund, which is supporting Hungary with stand-by loan agreements.

His remarks did little to calm fears in financial markets, where investors worried that the new government could soon announce worse news from Hungary's Treasury.

In credit markets, the cost of insuring Hungarian sovereign debt against default rose to its highest level since July 2009. Hungary's five-year credit-swap spreads—a key measure of credit risk—stood at 0.43 percentage point. That is over one percentage point wider on the day and 1.8 points on the week.

"You simply cannot talk like this in these markets," said Timothy Ash, head of emerging market research at Royal Bank of Scotland.

Economists were also left confused by apparent conflicting signals from the new center-right Fidesz government, which has said it plans to give a state-of-the-budget statement over the weekend.
MarketBeat

* Really? Now We're Worried About Hungary?

Fidesz won parliamentary elections in April in a landslide victory, unseating the minority Socialist government that implemented painful austerity measures to regain investor confidence.
That hard-earned confidence could evaporate quickly unless the comments are a prelude to some further fiscal measures. "We see the comments as a pre-warning/excuse to continue fiscal prudence," said Nordea economist Elisabeth Andrew. "The communication technique was clumsy, however, and caused market confusion."

The government said it would start the economic reorganization once the findings of a committee investigating the "true" state of the budget are published. Mr. Szijjarto didn't go into details on the reorganization, but said it won't happen under previous methods of "patchworking" and austerity measures as these failed when the socialist government was at the helm.

The committee, headed by Chief of Staff Mihaly Varga, will report to the government over the weekend, and the findings will be published "within 72 hours" from then, said Mr. Szijjarto.
— Clare Connaghan in London contributed to this article.

http://online.wsj.com/article/SB10001424...TopStories