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The EU’s Weakest Link Moves Closer to Breaking

Posted by Larry Doyle on January 4, 2012 8:16 PM |

When I write of “the EU’s weakest link”, to which country do you think I refer?

Must be Greece, right? Maybe not.

Italy? Nope, not them either.

Portugal? Ireland? Spain? No, no, no!!

I first wrote of The Weakest Link in early 2009.  I highlighted the fact that this “weakest link” moved to nationalize its pension system in late 2010 in this commentary.

Enough of the suspense. Which nation do I believe is the EU’s weakest link? 


What is happening in this eastern European member of the EU which has officials from the IMF and the EU so concerned?

As reported in tomorrow’s (January 5) UK-based The Telegraph,

Benoit Anne, of Societe Generale, said in a note: “We are very near boiling point in Hungary with a crisis that may escalate into something much more serious than a simple macroeconomic crisis… The EU is extremely concerned about the latest political developments and the potential EU response will – no doubt – be harmful to investor confidence.”

Hungary, which must roll over nearly €5bn of external debt this year, is due in February to start repaying a loan to the International Monetary Fund (IMF) that saved the country from financial collapse in 2008.

Borrowing costs rose in other central European countries today including Poland and Czech Republic. There are also fears about the exposure of European banks to Hungarian debt, particularly Austrian and Italian institutions.

Officials from the IMF and the EU are scheduled to resume talks about a financing agreement with Hungary on January 11. However there are doubts a deal will be reached. IMF officials quit Hungary last month after Budapest insisted on pushing ahead with constitutional reforms that undermined the independence of the central bank.

What might the ramifications of Hungary’s inability to rollover this loan?

Can you spell default? Although, in a rather cavalier fashion,

State Secretary Gyula Pleschinger told reporters an international credit line “would be very beneficial” for Hungary. However, he added that “it wouldn’t be a tragedy” if the extra financing did not materialise.

Really? Well, let’s take a closer look.

The Budapest government saw borrowing costs soar and the currency plunge as traders bet that international authorities may abandon Hungary, letting it become the first European Union country to default on its debts.

The florint fell more than 1pc to a record low against the euro and bond yields soared over 10pc.

Might this Hungarian link cause the well worn EU chain to split and whipsaw all around so that the the economic union is never the same again?

For the entire read, I humbly submit, Hungary Faces Crisis as Traders Fear Bond Default.

Navigate accordingly!!

Larry Doyle

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I have no affiliation or business interest with any entity referenced in this commentary. The opinions expressed are my own. I am a proponent of real transparency within our markets, our economy, and our political realm so that meaningful investor confidence and investor protection can be achieved.


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