Hungarian PM: Give Eastern Europe $141B or Else

♠ Posted by Emmanuel in , at 3/01/2009 11:40:00 AM
It is really hard to sympathize with Hungarian PM Ferenc Gyurcsany calling for a whopping $241B to be schlepped to Eastern Europe for reasons I have given very recently. Most of these countries put off joining the EMU and using the euro--something that would have given them protection from storms now roiling the world economy. I don't think Italy and Greece are much better run than these ones, but their use of the euro gives makes them rather less vulnerable. Also, these guys have ignored the similar example from the East Asian crisis of a decade ago involving unhedged borrowing in foreign currencies--in this case, euros and Swiss francs. In times of trouble, folks stampede out of less liquid holdings such as currencies of Eastern Europe and into more liquid ones such as the euro. Oh well, that didn't stop Gyurcsany from making hyperbole about an economic iron curtain [I roll my eyes].

This time, they can't blame the big, bad Soviet Union using military dominance to bring them into its orbit. Emotional blackmail doesn't really work here. As is usually the case, their current troubles are largely self-inflicted, so the blathering is infantile, indeed. Those Slovenians and Slovakians were wise; Eurosceptics are econo-Luddites of the first water. From the Associated Press:
Hungary's prime minister warned of a new economic "Iron Curtain" being drawn unless leaders at Sunday's European Union summit acted to protect the bloc's weakest members from drowning in the global economic crisis. Prime Minister Ferenc Gyurcsany said the credit crunch is hitting poorer, eastern member states the hardest. The Hungarian leader called for a special EU fund of up to euro190 billion ($241 billion) to help restore trust and solvency in eastern EU members' financial markets. "We should not allow that a new Iron Curtain should be set up and divide Europe," Gyurcsany told reporters ahead of the summit.

Hungary, along with other eastern EU nations like Poland, Latvia and Slovakia, are in dire economic straits and are pleading with richer countries in the 27-nation bloc to show solidarity. Hungary and Poland and the Baltic countries also want the EU to fast-track their bids to join the euro-currency, which could offer them a stable financial anchor...

Gyurcsany said eastern EU countries could need up to euro300 billion ($380 billion), or 30 percent of the region's gross domestic production this year. He warned, in a paper presented to the EU summit, that failure to offer bigger bailouts "could lead to massive contractions" in their economies and lead to "large-scale defaults" that would affect Europe as a whole. Gyurcsany added that failure to support fellow EU countries could trigger political unrest and immigration pressures as jobless rates soar.

Once booming east European economies have been hit hard by the economic downturn. As cheap [foreign] credit dried up their export markets shrank, causing eastern currencies to slide and triggering more financial turmoil.
UPDATE: German Chancellor Angela Merkel flat-out rejects this appeal, pointedly naming Slovenia and Slovakia as counterexamples that are not in trouble for the reason I've mentioned--they took joining the EMU seriously earlier on. This woman is a voice of fiscal sanity in a region full of stimulus crass Keynesianism:
European Union leaders rejected pleas for an aid package for eastern Europe and EU funds for carmakers, bowing to German concerns over budget deficits as the economic slump deepens. EU leaders vetoed a call by Hungary for loans of 180 billion euros ($228 billion) for ex-communist economies in eastern Europe, and told automakers such as General Motors Corp.’s European arm to look to national governments for help.

“I would advise against taking huge numbers into the debate,” German Chancellor Angela Merkel told reporters at an EU summit in Brussels today. “I see a very different situation -- you can compare neither Slovenia nor Slovakia with Hungary.”
That these troubled Eastern European countries missed the euro boat is their fault; making others pony up tens of billions for their mistakes is so...American.