The global financial market turmoil has a stranglehold over Hungary.

International financial measures worth € 20 billion and provided by the EU, the International Monetary Fund and the World Bank shall help to strengthen the investor confidence. Nevertheless, Hungary will suffer from the consequences of the financial crisis in the years to come. Analysts expect a positive effect from the international financial aid to calm investors´ minds in the whole region. The surprisingly high amount of € 20 billion, only € 10 billion had been expected, serves as a safety margin for the Hungarian financial system.

The Hungarian Government has already reacted to the financial emergency situation and reduces public spending. Next year civil servants and government employees will not receive a 13th wage and pensioners will only receive a part of their 13th pension. The revised budget for 2009 provides an additional reduction of expenditure of HUF 400 billion (€ 1,55 Billion). Prime Minister Ferenc Gyurcsany suggested to create a stabilization fund of HUF 1.000 billion (€ 3,87 billion).  ”We have more or less overcome the financial crisis”, he said lately in parliament in Budapest. ”But we are facing a protracted economic crisis which we have to provide for.”

In the face of the global financial crisis Budapest refrains from its already planned moderate tax reform. A corresponding bill which had already been submitted to parliament was withdrawn without substitution. The tax amendment would have brought taxpayers and companies a reduction of some HUF 150 billion (€ 594 million) from 2009 on. But experts had already called this plan insufficient for stimulating the country’s economy which complains about high taxes and charges.
Erica Szücs, the Hungarian Secretary of State for Employment, reported that first effects of the global financial crisis were already felt by the car-, the building- and the electronic industry as well as by the service industry. According to the Central Statistical Office in Budapest the rate of unemployment amounted to an average 7,7 per cent between July and September.

Hungary was hit harder by the international financial market turmoil than any other transformation country in this region. This is due to earlier failures. The Hungarian state is expensive. Despite high taxes and charges it achieves insufficient revenues as the rate of employment of 57 per cent of the 15- to 64-year-olds is low. Therefore expenditure is financed by government bonds some 40 per cent of which are held by foreigners. The total national debt amounts to 67 per cent of the gross domestic product (GDP). During the last two years Gyurcsany´s government, nevertheless, seriously attempted to reduce the budgetary deficit from 9,2 per cent of the GDP (2006) to presumably 3,4 per cent in 2008. This was, however, not accomplished by structural reforms but mainly by increasing taxes and charges.

So far the government has not turned to overdue structural reforms, such as reforms of the social security system and the public administration, without which, experts say, a significant long-term recovery of the Hungarian economy will be impossible.

Zitat:
"We have, more or less, overcome the financial crisis."
Ferenc Gyurcsany, Hungarian Prime Minister