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A tax too far on Hungary’s banks

An onerous tax on banks proposed by the Hungarian government can only further damage an already weakened economy.

Discretion, the saying goes, is the better part of valour. The Hungarian government would do well to ponder the meaning of that phrase after a hapless few months in power that has not only seen it single-handedly wreck its own country’s fiscal credibility but also endanger that of much of the rest of emerging Europe. Prime minister Viktor Orban’s Fidesz party won a famous electoral victory earlier this year, securing a two-thirds majority that gives it the right to make sweeping constitutional changes, but its performance on the economic front so far has been infamously gauche.

Having first spooked markets with talk of Greece-like fiscal and debt repayment problems, abandoning talks with the European Union and the IMF, the country’s principal economic sponsors, over the continuation of a €20 billion bailout package looks increasingly reckless. Small wonder that the Hungarian forint has been the world’s worst-performing currency against the euro in the past three months.

Looking beyond Hungary’s relationship with its official creditors there’s also the thorny issue of the government’s relationships with foreign bank lenders that play an important role in the economy. While the Fidesz administration’s proposed bank tax will curry favour with the anti-banking lobby at home that feel that international lenders have profited from Hungary’s economic misfortunes, the fact that it is three times larger than levies proposed in other parts of Europe and elsewhere will do nothing to encourage foreign banking players to put precious capital to work.