Wall Street was gloating – ‘shrugged off the slump’, was the phrase, I think – then it started to go sideways again. And once again it was those pesky Europeans, who just couldn’t stick with the mindless euphoric trance of See no evil, Hear no evil.
So what went wrong, that the Euro started to slide again and sapped all that New-World can-do-ness?
Well, look East. Over the last few days I have been wondering about the Balkans and about Hypo Real Estate’s sudden need for more bail-out cash. I think the signs are, my worries were justified.
Today both Rumania and Hungary tripped and stumbled. Both of them had failed Bond auctions. Romania’s failed because the government would not accept the interest rate demaned by the Bond buyers. So it withdrew the auction and went home with empty pockets.
Hungary was forced to cut the amount it had on sale because not enough people/buyers even turned up. As a consequence Hungary’s currency, the Florint, is falling like a pig trying to fly. The cost of insuring its debt – were it ever to manage to sell any – also got a lot more expensive today.
Why all this action in Hungary. Well one of the main reasons is that most mortages in Hungary are not in Florints. They are in Swiss Franks. Which means a) the government can’t do diddly about them 2) they are getting more and more expensive to pay as the Swiss Frank apperciates and the Hungarian Florint becomes worthless. And as if all this was not enough, arriving like the grim reaper – an IMF mission is hovering in the wings.
The IMF is hovering because neither Hungary nor Romania have implemented the austerity measures they agreed with the IMF. Romania’s debt level is going to be seriously above what it agreed. Hungary’s debts are growing and its incoming Prime Minister has been criticising the ‘agreed’ austerity measures and threatening to replace the Govenor of the Central bank. None of which is music to the ears of Torquemata of the IMF.
But why is this sort of thing enough to upset global markets? Surely Romania and Hungary are, with all due respect, small fry? Yes, true. But the Balkans are tied to Greece and Greece is tied to Spain. It’s like the foot bone being connected to the ankle bone. And perhaps more immediately, it shakes the bankers out of their Dom Perignon glow of optimism and reminds them that austerity measures ‘agreed’ are NOt the same thing as austerity measures ‘enacted’. What if such scandalous disregard for agreed measures were to spread from Balkans to Southern Europe? What if Balkan problems further discomfoted Greek Banks for example?
Austerity measures – you just can’t force them – can you?