Thursday, 5 January 2012

Hungary faces default

Hungary has been angling to get into the Euro for almost 10 years. It was the first country to suffer from Prussian directives on how to structure its central bank to fit in with the Maastricht Treaty. The then Prussian dominated ECB demanded the bank president's term should be doubled to 8 years and required similar safeguards regarding the bank's vice presidents. The Hungarians did not like it but had to say Ja Wohl.

Pigeons come home to roost and today's DT business reports the cancellation of a Hungarian bond swap auction, presumably aimed at lengthening the maturity profile of their debt, because there would be no takers. The new Hungarian prime minister has just passed laws giving him the right to appoint all the bank vice presidents plus other powers over their MPC members. This is of course anathema to the ECB but the Hungarians badly need an IMF loan as well as an EU refinancing agreement hence the new law.

I find it vastly amusing as these Hungarian proposals are little different from the UK where the PM appoints the two BoE deputy governors as well as the governor and the four outside members of the MPC. The UK Europhiles led by my neighbour Lord Pantsdown et al, assume we would be welcomed with open arms into the Euro. Not so! The first thing the ECB would demand is a reform of the BoE! So much for the vaunted expertise of the House of Lords. On monetary policy they know Jack Shit and it would be better for us all if these unelected placemen  kept their gobs shut on these things they patently don't understand.

The EU must feel like the little Dutch boy running around putting their fingers in the holes in the dyke. First Greece, then Portugal, then Italy and Spain and now Hungary. Then the Spanish come back for another 50 bn€ for their banks. How long before the EU run out of fingers?

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