Hungary breaks off IMF talks

Don’t look now, but Hungary and its Fidesz-led government look set to hit the headlines again. Talks with IMF officials broke up over the weekend without any agreement on the appropriate austerity measures to be taken.

Fidesz seems to be of the opinion that enough is enough. Economy Minister Gyorgy Matolcsy told HirTV “We said that further austerity measures cannot be carried out…That’s the problem that we are in the fifth year of austerity measures, that’s why we are where we are.”

Where Hungary seems to be is between a rock and a hard place. It appears the government is taking the view that it doesn’t need the last couple billion euro in loans originally pledged to it, meaning the IMF can’t force it to carry out budget cutting measures.

That may be true in the short-term, but there’s always that law of unintended consequences that kicks in. Unfortunately, we suggest keeping an eye on the forint exchange rate, and on the interest rates the country will have to accept next time it tries to sell some bonds (watch its credit default swap rates if you want an early indicator).

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