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Hungary Bites The Hand That Feeds It

Prime Minister Viktor Orban stands in front of a bloodbath. Getty hide caption

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Prime Minister Viktor Orban stands in front of a bloodbath.


It's getting ugly in Hungary right now. The value of its currency is plunging. Prices are rising. No one wants to lend it money.

And it can't even blame all its problems on the euro like everyone else in Europe does. It has its own currency, the forint.

And that, it turns out, is the problem.

In Hungary, before the financial crisis, lots of people took out mortgages in Swiss francs. Hey, they thought, why not? Swiss banks were offering low, low interest rates. But if you're in Hungary, paying a mortgage in Swiss francs, you are stuck. Your salary is in forints. And you are at the mercy of exchange rates when you go to pay your bills every month.

This year, Hungarians have seen their currency plummet and the Swissie skyrocket. Mortgage payments went through the roof.

Unhappy citizens. Abandoned properties. Economic collapse. To make this a classic European disaster story, all you need is a megalomaniac as a leader. And that's exactly what Hungary got.

In 2010, Hungarian voted in Viktor Orban as Prime Minister. Jacob Kirkegaard of the Peterson Institute puts it as kindly as possible. Orban, he says, "is not your arch-typical European democrat. He's no Václav Havel, let's put it that way."

Orban immediately began to rig Hungarian state institutions in favor of his own party. He curbed the freedom of the press and the judiciary. Last week, his brand-new constitution went into effect. And he's also got his claws deep in Hungary's Central Bank. He's appointed himself in charge of naming his central banks governors — with no oversight. This last move freaked out the ratings agencies, the IMF, and, naturally, the European Central Bank.

You know, the same people Hungary needs to lend them money and bail them out..

Orban even got involved in the whole mortgage mess. In September, he pegged the forint to the Swiss franc at an artificially high level. Think of it this way: even though everywhere else in the world, one franc is worth a bucketful of forints— in mortgage payback land, it's worth a handful. Who eats that loss? The banks.

So now, add the banks to that long list of people that Orban has pissed off.

Like I said, its ugly. Hungary just got downgraded to junk status by the ratings agencies. Yesterday, the banks were asking for a ten percent interest rate just to lend Hungary money. Hungary canceled the bond sale.

The only bright spot in all this is that unlike Italy or Spain, Hungary is small potatoes in the global economy. If it collapses — that's mostly Hungary's problem. Or more specifically, Viktor Orban's problem.