Just when you thought it starting to get safe to invest in Europe, the Hungary -IMF loan talks break down. Hungary received IMF support in late 2008 to avoid bankruptcy. Now it wants better terms. Unfortunately borrowing from the IMF is like going to a loan shark. You may get your money but they will dictate many of the policy choices that you will have available.
Hungary has not drawn on the funds since last years, so the government is feeling good that they can negotiate harder against the IMF. Hungary believes that more austerity will cut-off their recovery; nevertheless, if there is a decline in the forint, the central bank will have to keep rates up to support the currency.
This is an interesting test case for what may happen in other EU countries that borrow from the IMF. Tings get better and the government wants better terms. Unfortunately, that is not the way term lending or credit lines work.
Hungary has not drawn on the funds since last years, so the government is feeling good that they can negotiate harder against the IMF. Hungary believes that more austerity will cut-off their recovery; nevertheless, if there is a decline in the forint, the central bank will have to keep rates up to support the currency.
This is an interesting test case for what may happen in other EU countries that borrow from the IMF. Tings get better and the government wants better terms. Unfortunately, that is not the way term lending or credit lines work.
No comments:
Post a Comment