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Hungary in the Financial Crisis: A (Basket) Case Study

This article examines the impact of the recent global financial crisis on Hungary and uses this analysis to draw conclusions about Hungarian economic policy and performance over the last decade. The point at issue is that of why Hungary has shown such vulnerability to global developments and has been forced to obtain external support from the IMF. Conventional explanations for this vulnerability are reviewed and it is noted that such explanations generally centre on what has been seen as an irresponsible fiscal policy stance. While acknowledging the problems inherent in Hungarian fiscal policy during the last decade the article broadens the scope of the debate to include both domestic monetary policy and the nature of Hungary's integration into the international financial system. It is suggested that Hungary occupies an intermediate place with regard to Central and Eastern European economies; situated between the small open economies who have adopted either the euro or a currency board system and the larger economies who have allowed exchange rates to float. This position has led to inconsistencies and vacillations in Hungarian policy stances. The article concludes with some suggestions for an alternative approach to economic policy management for Hungary in the light of current difficulties.