In spite of the fact that Hungary is not part of the eurozone, and although its problems differ from that of Greece, there are concerns that its banking problems could still have a damaging impact on the european economy. Austrian banks alone are on the hook for liabilities of US$40bn. The anxiety originates from the amount of public and private sector debt that is held in foreign currencies.
When the Hunagarian currency – the forint (ft) – was strong it was okay to have liabilities in euros and Swiss francs. This is because there are less Fts required to buy a euro or Swiss franc in order to pay the interest on the debt. However the rapidly falling Ft has made it more expensive to pay back the interest on loans which in turn has led to increasing bad debts. The Ft, sank to a record low against the euro a month ago (see graph), and its government bond yields rose above 11 percent on concerns that amid the euro zone crisis it may not be able to fund its increasing debt with projected weak economic growth.
Although it has recently increased against the euro (see graph), Hungary is still seeking an international credit line of 15 to 20 billion euros.