Source: The Malta Independent
by George M. Mangion
Article published on 8th January 2012
Malta’s trade and bilateral relations with Hungary (nostalgically labelled “Goulash lovers”) were at their peak during the socialist years in the late 1970s¸ when a number of companies were set up – mostly in the engineering sector – with the help of Hungarian technicians.
Sadly¸ none of these enterprises have survived¸ but relations were renewed when Hungary left the Soviet regime and subsequently joined the EU in 2004. From the economic perspective¸ one sadly recounts how the Hungarian economy and its currency¸ the forint (HUF)¸ is facing turbulent times on the international markets reflecting a recession. As will be seen later in this article¸ the forint has been making the headlines as a currency that is facing extreme pressure to devalue and Hungary¸ as a consequence¸ is being made to suffer a higher cost of servicing its debt repayments. Yes¸ Hungary’s prime minister – 35-year-old Viktor Orban – is out in the streets begging for a second bailout. His government¸ which won a landslide victory in the 2010 election¸ is facing strong criticism from opposition politicians and activists¸ who have sought EU help against Mr Orban’s centre-right party’s tight grip on power.
This situation is now coming to a head¸ with the promulgation of a central bank law which¸ according to critics¸ carries potentially serious economic consequences. The legislation proposed by Mr Orban opens the way for an increase in the number of members on the bank’s interest rate-setting committee appointed by Parliament and a possible merger of the central bank and a financial regulatory agency¸ which would potentially result in the effective demotion of the bank’s governor. Both¸ the National Bank of Hungary and the European Central Bank have said the law poses a significant threat to the central bank’s independence. The impasse has become more complex with both the EU and the IMF making the bank’s independence a pre-condition to any new financial backing.
Hungary has an outstanding debt equal to more than 80 per cent of its annual economic output (compared to 68 per cent in Malta). This year¸ it will need to repay or roll over more than €4 billion in external debt and¸ as was to be expected¸ the forint has fallen to a record low against the euro. But who will come forward to bale the Goulash lovers out of their misery? Based on its own limited resources¸ Malta has been ready to participate to help build up a fund in the latest IMF-sponsored eurozone rescue mechanism following the 9 December summit. This works out at a comparatively small sum¸ but for our fragile economy the contribution looks equally generous.
Malta did pledge between €150 and €200 million in new bilateral loans as part of