Updated: June 8, 2010
Hungary, one of the countries in Eastern Europe hardest hit by the economic crisis, shifted to the right in parliamentary elections held in April 2010.
Hungary's center-right Fidesz party secured a two-thirds majority in second-round parliamentary elections held in late April, ousting the governing Socialist Party and giving it the authority to pass legislation, including crucial economic changes, without having to form alliances with the opposition.
The ruling Socialist party conceded defeat to the Fidesz party led by a former prime minister, Viktor Orban. Fidesz won 263 of the 386 seats in Parliament, followed by 59 seats for the Socialists and 47 seats for the far-right Jobbik party.
Mr. Orban has indicated repeatedly that he wants the I.M.F. to allow Hungary to run a higher budget deficit than the current 2010 target of 3.8 percent of gross domestic product.
Mr. Orban - like other political leaders in Europe - is finding it nearly impossible to satisfy two very different constituencies: disaffected voters who are unwilling to see their pay and benefits cut further, and the European Union, the I.M.F. and bond investors, who are demanding ever deeper austerity measures as a way of reducing debt.
On June 5, 2010, a spokesman for Mr. Orban was quoted by news agencies as saying that the Hungarian economy was in a "very grave situation." He even raised the specter of a default, saying such speculation "isn't an exaggeration" and comparing his country to Greece. While the comparison unnerved the financial markets, it prepared a reluctant population for tougher spending cuts and gave the government bargaining power to push through tax cuts and other deficit-busting measures.
But on June 7, the European Union and the I.M.F. vehemently rejected speculation that Hungary was in danger of defaulting on its debt. Olli Rehn, the economic and monetary affairs commissioner for the European Union, called such talk "wildly exaggerated."
Hungary's political gamesmanship could indeed backfire, with investors refusing to continue to finance the budget deficit. After the earlier comments, the Hungarian currency slid, the yield on 10-year Hungarian government bonds surged and shares on the Budapest Stock Exchange tumbled. The Hungarian government had to assure shaken investors that it was nowhere near bankrupt and that it intended to meet the deficit target of 3.8 percent of G.D.P.
When the global financial crisis hit in 2008, Hungary was particularly vulnerable, largely because it had taken on far too much debt but also because it was not under the sheltering umbrella of the euro. During its boom, more than 1.7 million families took out foreign currency loans to finance their mortgages. When Hungary's currency collapsed, the cost of making the payments on those loans soared.
In late 2008 it was forced to approach the International Monetary Fund for $25 billion in emergency financing. Unemployment has soared to over 11 percent and the economy contracted in 2009 by 6.3 percent. The Socialist government raised taxes and slashed spending, helping to reduce Hungary's budget deficit to 4 percent of gross domestic product in 2009, from 9.3 percent in 2006. But while the measures have stabilized Hungary's finances, they have alienated many voters.
Economists hold Ferenc Gyurcsany, the Socialist prime minister who stepped down in 2009, responsible for the parlous state of Hungary's finances, which spun out of control after the governing Socialists embarked on a big spending spree to win votes in the 2005 election. Mr. Gyurcsany later acknowledged that he had lied to voters about the true state of the Hungarian economy.
Mr. Gyurcsany began the process of fiscal restraint in 2006, but only modestly and only under pressure from the European Commission after Brussels noticed the spiraling budget deficit and the government's loose monetary and fiscal policies.
For all the alarmism by senior government officials in their comments on June 5, 2010, economists said the country was nowhere near the crisis level of Greece and emphasized that the statements appeared to have been politically motivated to tarnish the previous Socialist government and to give Mr. Orban a stronger negotiating position with the I.M.F.
On June 7, Jean-Claude Juncker, the prime minister of Luxembourg, who was leading a meeting of euro-zone finance ministers, was adamant about Hungary's position. "I do not see any problem at all with Hungary," he said. "I only see the problem that politicians from Hungary talk too much."
