Public anger over Hungary's new constitution and a raft of other new laws may be the least of Prime Minister Viktor Orban's problems. Financial markets, it turns out, are just as wary -- and could drive the country to the brink of insolvency.
The European Commission on Tuesday announced that it was combing through both the new constitution, which took effect on Jan. 1, and a new law pertaining to Hungary's central bank, the Magyar Nemzeti Bank (MNB), to determine if they adhere to European Union treaties. Furthermore, the Commission said on Tuesday that the EU and the International Monetary Fund (IMF) have not yet decided whether to resume negotiations over much-needed financial assistance for Budapest.
It didn't take long for markets to react. Yields on 10-year Hungarian bonds spiked to 10.7 percent on Wednesday, continuing a sharp rise since the talks over a €20 billion ($26 billion) EU/IMF aid package for Hungary collapsed in December. The country's currency, the forint, plunged to an all-time low against the euro on Wednesday morning. Both Standard & Poor's and Moody's slashed Hungary's credit rating to junk status in the weeks before Christmas. Hungary needs to refinance debt worth €4.8 billion in the coming months.
The aid talks were broken off due to concerns about new laws regulating the central bank, pushed through by Orban's center-right Fidesz party, which controls two-thirds of the seats in parliament. Of particular concern are provisions which allow the government to appoint the bank's vice presidents, thus infringing on MNB's independence. Furthermore, the law increases the number of vice presidents from two to three, allowing Orban to appoint one immediately. In addition, the committee which sets monetary policy has been expanded, with new members to be appointed by the Fidesz-run government.
For more: The World from Berlin: 'Democracy Is Being Trampled On in Hungary' - SPIEGEL ONLINE - News - International
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