Hungary’s Defiance Of IMF And European Authorities Scares The Guardians Of Austerity In Europe
Aug. 9, 2010
The government of Hungary has taken on a lot of powerful interests in the last couple of months, and so far appears to be winning – despite provoking outrage from everybody who’s anybody.
“The IMF should hold the line,” shouted the Financial Times in an editorial the day after Hungary sent the IMF packing in July. “With so many countries in vulnerable positions, it cannot be seen to be a soft touch. Showing a few yellow and red cards is a good way to send a signal to other governments that might be tempted to flirt with indiscipline.”
This is the great fear among the defenders of European “pro-cyclical” policies – that is, policies that weaken the economy during a recession or when it is barely growing. Hungary’s defiance could conceivably spread to other governments currently being squeezed by the IMF and European authorities.
First, the Hungarian government decided in early July to levy a new tax on banks and other financial companies, which would raise some $855m this year and next. Foreign banks, which made a fortune during Hungary’s bubbly growth years prior to the crash in 2007, screamed and lobbied, but – despite having the IMF in their corner– did not prevail.