Hungary's prime minister Gyurcsany sticks to his guns
If you are a fund manager interested in investing in central and eastern Europe, there is a strong possibility that you will be directed towards Hungarian government debt. The country’s debt management agency, the AKK, has issued about €2 billion annually to meet the country’s budgetary deficit in recent years. With about 30% of the debt held by foreign portfolio investors, perhaps the most important influence on its price is perception of the government’s resolve to limit an unusually large deficit.
"Hungary does not need new austerity measures. We need to implement the measures we have already decided to introduce, and not to retract measures or open the debate again"
The traditional pattern in Hungary used to be that governments dramatically widened the budget deficit before elections. The epitome of this came in the 2006 general elections. The deficit for that year reached 9.2% of GDP, the largest in the EU. The gross external debt to GDP ratio passed 96.7% and was on the way up. Standard & Poor’s downgraded the sovereign. Soon after being re-elected in 2006, Ferenc Gyurcsany, the socialist prime minister, broke the bad news: radical changes were needed to save the country from bankruptcy. No sooner had these changes begun to be introduced, however, than tapes were leaked to the press in which he admitted to lying about the economy in order to win the election. The opposition, unsurprisingly, cried foul, and the worst riots since 1956 ensued.