The Swiss National Bank has for the last month or so been buying up Euros as fast as it could in an effort to stop its own currency appreciating too far. It’s interventions in the FX (Foreign Exchange) markets have been spectacular. Their buying doubled to around €230 Billion in the last month or so. But it has failed. The Euro fell to a new low against the Franc.
Unfortunately for most of Eastern Europe most mortgages in plceas such as Hungary have been bought inSwiss francs. This means that as the Hungarian Florint gets weaker and the Swiss franc gets stronger those mortgages cost more and more to pay off, Then person who has the mortgage gets paid in Florints but what they owe is calculated in Swiss francs. This can only end one way for them.
The EU is also in a bad place. They can try to bail it out (God help us if they are so foolish – but on their past record, I’m not hopeful fof sudden outbreak of common sense…) but that will suffer in the same way. We could try to bail out the Florint but our euros are also lsoing value against the franc.
This is the problem with taking on debts in a currency other than your own. Hungary and the other countries in the same position have now lost control of those debts. They are going to grow as the Franc gets stronger and the local currencies and the Euro get relatively weaker.
No one really believed the suddent Hungarian assurances that everything was under control. Now we know they aren’t. This is another nail – as if one were needed. Give it a few days and this should feed through from unsettling Hungary to impact the euro.
As it is the bond markets are already looking at France and the UK as places to bet against. Spain is a in the cross hairs and the pressure on the trigger will only increase if the markets look at the strikes and get the feeling that Spain might not be able to stick the austerity to its people as the markets require. Same for Portugl and later, the same for GB.
Pincer movement from East and West.
I see your point about not contracting mortgage in, say, Francs if you are paid in, say, Polish zlotys, but I also understand why people do so: it's the huge difference in interest (2% vs. 10%, roughly), plus a steady appreciation of PLN against other currencies in recent years, to name two reasons. For me, it's quite enough to opt for the franc.
Dorota,
I understand. It's the consumer's version of a carry rtrade. The difference is that a carry trade, the banks can get out of when the interest rates narrow or even reverse. The problem with a mortgage is you can't get out.
For the moment P{oland is in the clear. I don't know what exposure Polish banks have to whose currencies and whose debts. But to your south things are not looking good. Hungary is likely to default. Bulgaria is going to be caught cheating for a second time. The EU is giong to send a mission to inverstigat Bulgaria's accounts. Could be bad. I think Bulgaaria's banks have been lying to the government. Put Hungary and Bulgaria together and the pressure on Greece will jump. And Greece has no cushion to absorb any more losses for its banks.
the add in Rumania which has problems as does Macedonia. All of this makes an unhealthy sea to Poland's south.
Things are going to get very rough in the next month or so. I sincerely hope you and yours are OK.
Thank you for your comment. I am always interested to hear your observations of the situation in Poland, what the media is saying – anything you feel like passing on.
Thanks again.